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capital gains tax - army
5 Answers
We brought our first property back in 2001 for £60,000. This property was brought purely to be our main residence. Unfortunately for us, this never worked out as various postings abroad and tours to Iraq made this highly unpractical. The property was rented out and we sold it in July 2009 for £98,000. Making £38000
The second property was a 2 bed flat; this was brought by my Wife and I in 2005, this was to be an investment for us when we retire. The property was rented out (Which we have kept up to date in paying our tax returns, for both properties). The property unfortunately has now been sold (nov 09). The property was brought for £87,500 and sold at a loss off £9500 at £78,000.
Could anyone advise us if we are still liable for Capital Gains Tax - I have heard that we can claim our first property as our main residence, which would exclude us from the tax, although as mentioned we have never lived there
The second property was a 2 bed flat; this was brought by my Wife and I in 2005, this was to be an investment for us when we retire. The property was rented out (Which we have kept up to date in paying our tax returns, for both properties). The property unfortunately has now been sold (nov 09). The property was brought for £87,500 and sold at a loss off £9500 at £78,000.
Could anyone advise us if we are still liable for Capital Gains Tax - I have heard that we can claim our first property as our main residence, which would exclude us from the tax, although as mentioned we have never lived there
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I'm afraid I think that you have a problem on 2 counts and you probably need to take professional advice to try and minimise your liability on the 1st house.
1) You are not correct in your assertion that the 1st property is exempt from CGT. The relief that you refer to is called Principal Private Residence but it only applies under set conditions and I don't believe you satisfy these because:
a) one does actually have to live in the property (or be able to demonstrate to HMRC you had a CLEAR INTENTION to do so) BEFORE and AFTER any period of absence from the property - even for a short period of time. You didn't do this. It's my words in brackets that my be able to be your 'get-out' on this count. But HMRC would probably look at the timing of when you actually bought it and when you were notified that you were being posted abroad. Not moving back into it after being abroad was a bit of a faux-pais I'm afraid.
b) Irrespective of a) above, the maximum time you can be away from the property is 4 years - when I believe you would have had to have come back to live in the property (even for a short period) to re-establish the right to regard it as your PPR, from where you could then be re-posted abroad. In 7 years, you don't seem to have lived in the property at all?
1) You are not correct in your assertion that the 1st property is exempt from CGT. The relief that you refer to is called Principal Private Residence but it only applies under set conditions and I don't believe you satisfy these because:
a) one does actually have to live in the property (or be able to demonstrate to HMRC you had a CLEAR INTENTION to do so) BEFORE and AFTER any period of absence from the property - even for a short period of time. You didn't do this. It's my words in brackets that my be able to be your 'get-out' on this count. But HMRC would probably look at the timing of when you actually bought it and when you were notified that you were being posted abroad. Not moving back into it after being abroad was a bit of a faux-pais I'm afraid.
b) Irrespective of a) above, the maximum time you can be away from the property is 4 years - when I believe you would have had to have come back to live in the property (even for a short period) to re-establish the right to regard it as your PPR, from where you could then be re-posted abroad. In 7 years, you don't seem to have lived in the property at all?
(Continued)
2) You can't unfortunately offset any capital loss on another investment against any liability for CGT on the first property.
This HMRC leaflet explains more. http://www.hmrc.gov.uk/helpsheets/hs283.pdf
CGT is assessed at 18% on the capital gain made.
You may be able to claim PPR relief for PART of the total period - that's why I am suggesting you really need tax advice. Surely one of the Army Welfare organisations must have some free source of information you can test this against? - you won't have been the 1st Serviceman to have come up against this obstacle.
2) You can't unfortunately offset any capital loss on another investment against any liability for CGT on the first property.
This HMRC leaflet explains more. http://www.hmrc.gov.uk/helpsheets/hs283.pdf
CGT is assessed at 18% on the capital gain made.
You may be able to claim PPR relief for PART of the total period - that's why I am suggesting you really need tax advice. Surely one of the Army Welfare organisations must have some free source of information you can test this against? - you won't have been the 1st Serviceman to have come up against this obstacle.
Whilst I wouldn't profess to be an expert on capital gains tax, I believe buildersmate is wrong on the last part. I think you can offset a capital loss on one asset with a capital gain on another IN THE SAME TAX YEAR. If these were July and November 09 sales as stated they are in the same tax year. You could also carry the loss forward for use against gains in later years if it wasn't required now.
This link should provide guidance http://www.hmrc.gov.uk/cgt/intro/losses.htm#4
This link should provide guidance http://www.hmrc.gov.uk/cgt/intro/losses.htm#4
I based my comment on this statement that appears in the Help Sheet I provided the link to.
"What if you have made a loss on the disposal instead of a gain?
If you make a loss on the disposal of your home and you would have got private
residence relief if you had made a gain, your loss will not be an allowable loss and
you will not be able to offset it against any gains you have made. If you would
have got partial relief, part of your loss will not be allowable and that part should
be calculated in the same way as you would have calculated the partial relief if
you had made a gain."
However the statement appears ambiguous and you may be right, Skyline.
"What if you have made a loss on the disposal instead of a gain?
If you make a loss on the disposal of your home and you would have got private
residence relief if you had made a gain, your loss will not be an allowable loss and
you will not be able to offset it against any gains you have made. If you would
have got partial relief, part of your loss will not be allowable and that part should
be calculated in the same way as you would have calculated the partial relief if
you had made a gain."
However the statement appears ambiguous and you may be right, Skyline.
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