No CGT paid

[AA]

I bought a house which I intended to live in but circumstances changed and after 2 months rented it out. After 8 years I sold this house for a profit of £100K. I have not paid any tax on the rental or any captical gains tax.

What do I owe in taxes and will I be liable to a fine.
Also am I able to claim any tax relief for the rental and for the capital gains tax

[wamstax]

Hi AA,
Well you can basically determine if you had any unpaid tax by deducting from the rental received any Interest (note only interest) and if it was rented out furnished say 10% of the rents in each year and calculate the result at your highest rate of tax. If there is unpaid tax and you failed to put it on any tax return (or notify HMRC that you had such a source) then there will probably be tax interest and a mitigated penalty to repay to HMRC. Then moving on to the Capital gain this would depend on
(a) when you bought it for what amount
(b) any capital improvements made to the property while in your ownership AND reflected in the state of the property when you disposed of it
(c) the date of sale and net proceeds of sale after deducting legal fees and other costs of diposal
(d) whether it was sold during a period that taper relief applied 1998 - 5th April 2008
(e) whether you disposed of any other assets for a gain in the same year that exceeded the annual exemption allowance
(f) depending on the circumstances it is unlikely that HMRC would treat 2 months as establishing the property as your Principal Private residence however if it was established then you would be able to claim PPR relief in respect of the two months along with UP TO £40,000 lettings relief.

As you will gather you would be best served getting a one to one tax advisor on a fee paying basis to take you through all this - and probably save you in the long run on penalties and reliefs etc.

regards and hope this helps
bill@wamstaxltd.com
http://www.wamstaxltd.com

[AA]

Thanks alot for your quick and thorough response, but as there was no mortgage and therefore no interest payment.

Also, as I was neither working nor claiming any benefits or tax relief, (say on savings), would my personal tax allowance be applied to the rental income for each year that this was the case?

Also, do the HMRC have the power to be lenient on fines as I did not know I had to pay tax, having never filled out a tax return, or been advised to declare income by letting agents or solicitors?

[al_eebee]

You must surely have realised you were receiving income on which tax would almost certainly be due.

Yes personal allowances will be available.

If HMRC have not already picked up on this then you would be well advised to bite the bullet and return the income and gain now, most probably through a tax adviser.

Coming clean before HMRC find out and start an enquiry on their own will help mitigate any penalty, but there will still be some penalty, and interest will be running on tax due.

Consider making a payment on account of tax due at the same time as notifying HMRC as this should also help, and will stop further interest accruing.