Capital gains tax

nightrider1470 · 6 Mar 2020 at 13:27

Property was bought for £71000 its now worth £330000, actually is a bed and breakfast that we live at

Looking to sell the property and get divorced.. Doesn't leave much in the pot when you take a 50 50 split and capital gains tax.

Do you get any tax relief in any way if a divorce is the reason for sale?

Just not much for my wife and I to buy separate houses or even a flat as I'm sure we have to pay 40% capital gains, according to our accountant

Just thought to ask, not complaining, just wondering

Martynt74 · 6 Mar 2020 at 13:36

If you live there then i'm sure there should be an element of exemption from CGT

Alternatively, it could make sense to turn it back into a residence for one of you for a few years and then sell it as then no CGT would be payable. I think it's 12 months, so one of you renting somewhere else would end up saving a big chunk of cash!

Paging @Pudney

Even if CGT was payable, my calculations work out that it would still net you each a minimum of £125k which isn't a bad deposit for a new property (Figure can be increased depending on how much apportionment you can claim between ouse/business)

It also depends on the type of B&B and whether guests had access to the whole house or just their bedroom.

Freakbro · 6 Mar 2020 at 14:03

Get your accountant to look into Lettings relief as well?

Because the house is split between main home/B&B, you will need to apportion a % to each for eg 40% home 60% business.

You will get full relief on the part that was your home via PRR, so that's 330,000 - 71,000 = 259,000 gain * 40% = 103,600 PRR relief. That leaves £155,400 for CGT

Lettings relief is the lower of :

the same amount you got in Private Residence Relief
£40,000
the same amount as the chargeable gain you made from letting your home

In this case it would be 40,000, so that makes £115,400 due for CGT

I don't know whether Entrepreneurs relief would then be able to be claimed.

(These are back of the fag packet calculations

)

Edit : I've just seen they are supposedly reforming Lettings relief from Apr 2020. Not sure how that will affect your situation, but it sounds like you would still be ok.

Martynt74 · 6 Mar 2020 at 14:17

Freakbro said:
t makes £115,400 due for CGT

Yeah, so split that in 2 It's £23,080 each and then knock off £12k for the CGT allowance and you're down to £10k

Can live with that.

edscdk · 6 Mar 2020 at 14:18

Freakbro said:
Get your accountant to look into Lettings relief as well?

Because the house is split between main home/B&B, you will need to apportion a % to each for eg 40% home 60% business.

You will get full relief on the part that was your home via PRR, so that's 330,000 - 71,000 = 259,000 gain * 40% = 103,600 PRR relief. That leaves £155,400 for CGT

Lettings relief is the lower of :

the same amount you got in Private Residence Relief

£40,000

the same amount as the chargeable gain you made from letting your home

In this case it would be 40,000, so that makes £115,400 due for CGT

I don't know whether Entrepreneurs relief would then be able to be claimed.

(These are back of the fag packet calculations )

Edit : I've just seen they are supposedly reforming Lettings relief from Apr 2020. Not sure how that will affect your situation, but it sounds like you would still be ok.

I assume you actually know this is correct?

if he purchased it as a home with his money then its not a business asset is it?

If he put some of the purchase price down as an expense or built an extension with business money then he might have to pay something>?

Freakbro · 6 Mar 2020 at 14:27

edscdk said:
I assume you actually know this is correct?

if he purchased it as a home with his money then its not a business asset is it?

If he put some of the purchase price down as an expense or built an extension with business money then he might have to pay something>?

It's a business because he said part of the property is a B&B, which is a business. You would then apportion the % that was business/home, then also maybe take into account the length of ownership and how much of that was spent as sole main dwelling compared to home/business use.

I'd have to brush up on the finer details of it though to be 100% sure of all the caveats, so I'll let his accountant do the donkey work

Pudney · 6 Mar 2020 at 14:31

Your situation is complicated enough that I'd be getting proper advice from a professional who understands the rules. Immediately I'd suggest your current accountant is either not suited to this request, or you've misunderstood his explanation, as CGT is payable at 18%/28% (residential properties) or 10%/20% (everything else). A 40% rate is suggesting your accountant thinks the gain is chargeable to income tax, but the sale of a business asset is still chargeable under CGT rules.

Potential things to consider:

1) Principal Private Residence relief on the portion that was your home,
2) Letting's Relief,
3) Entrepreneur's Relief (there are rumours the Chancellor may target this in the Budget next Wednesday),
4) Rollover relief if you intend to invest in a new business asset

There are reliefs for disposal of assets because of a divorce, but they typically apply when the assets are being transferred from one spouse to another (and if conditions are met protect the no gain/loss rules that married couples enjoy).

Edit: on PPR, it's important to note you look at the entire period of ownership and whether it was your main residence or not (and whether some wasn't). As you've partially used it for a business it will probably never get full CGT relief on it, but that depends on how long it's been used for business purposes.

Freakbro · 6 Mar 2020 at 14:33

edscdk said:
If he put some of the purchase price down as an expense or built an extension with business money then he might have to pay something>?

Also, that's a good point, if he spent money on capital improvements to the building, whilst converting/expanding the B&B business, it shouldn't have been claimed as AIA but would also be used to offset any capital gain.

Marvt74 said:
Yeah, so split that in 2 It's £23,080 each and then knock off £12k for the CGT allowance and you're down to £10k

Can live with that.

Doesn't CGT allowance come off the gain before you calculate the tax, not the actual tax

edscdk · 6 Mar 2020 at 14:37

Freakbro said:
Also, that's a good point, if he spent money on capital improvements to the building, whilst converting/expanding the B&B business, it shouldn't have been claimed as AIA but would also be used to offset any capital gain.

Doesn't CGT allowance come off the gain before you calculate the tax, not the actual tax

if there is a lot of potential tax could he stop the business, call it his home for 2 / 3 years then save the tax? (same as you might be able to do with a rental property)

Freakbro · 6 Mar 2020 at 14:39

edscdk said:
if there is a lot of potential tax could he stop the business, call it his home for 2 / 3 years then save the tax? (same as you might be able to do with a rental property)

Sounds like the divorce is forcing things on though

the shadow · 6 Mar 2020 at 14:43

4) Rollover relief if you intend to invest in a new business asset marry again

booyaka · 6 Mar 2020 at 14:46

Not enough information to give you a proper answer.

How was it bought ? Personally or as a business? You say it's a B&B but you live in it?

As @Pudney has mentioned already - there are too many variables in your basic information to give any form of answer here. You need some proper tax advice,

https://www.gov.uk/government/publi...psheet/hs283-private-residence-relief-2017--2

Martynt74 · 6 Mar 2020 at 15:00

Freakbro said:
Doesn't CGT allowance come off the gain before you calculate the tax, not the actual tax

Shush, it's years since i did my tax exams

Martynt74 · 6 Mar 2020 at 15:03

Also paging @[FnG]magnolia

I know he loves this ****

EDIT - Aww can't tag him!

nightrider1470 · 6 Mar 2020 at 16:26

booyaka said:
Not enough information to give you a proper answer.

How was it bought ? Personally or as a business? You say it's a B&B but you live in it?

As @Pudney has mentioned already - there are too many variables in your basic information to give any form of answer here. You need some proper tax advice,

https://www.gov.uk/government/publi...psheet/hs283-private-residence-relief-2017--2

It was bought as a business, over 35 years a go, the back has living quarters where we both live.... We haven't built on or extended the property.

My wife is currently living at her sons... She's happy there and would probably look to stay if needed, if it would somehow release more money for both of us.

I could stay here as a home for a number of years, if it would somehow release the CGT

We both have ok-ish pensions

It would just be somehow great to not get stung by so much CGT, as both want to move on, but have enough to live on, for all the years we've poured our sweat and tears into this business

Thanks all

nightrider1470 · 6 Mar 2020 at 22:26

Bump with love on whisky

Mark M · 7 Mar 2020 at 08:48

Get a better accountant, unless you are misunderstanding what your current advisor has told you they are going to cost you tens of thousands of pounds.

Kemik · 7 Mar 2020 at 13:13

Strange that you’re asking for advice from a computer forum when your accountant knows all of the facts and has given you advice?

Does it operate as a B&B business for the last two years? Will it continue as a B&B post sale?

Don’t know all of the facts but I’d be looking at PPR for the private usage element (ie no tax) then potentially entrepreneurs relief for the rest (10% on the gain not private).

Panos · 7 Mar 2020 at 13:59

nightrider1470 said:
Property was bought for £71000 its now worth £330000, actually is a bed and breakfast that we live at

Looking to sell the property and get divorced.. Doesn't leave much in the pot when you take a 50 50 split and capital gains tax.

Do you get any tax relief in any way if a divorce is the reason for sale?

Just not much for my wife and I to buy separate houses or even a flat as I'm sure we have to pay 40% capital gains, according to our accountant

Just thought to ask, not complaining, just wondering

If you operate the B&B and has a healthy profit, have you considered take a mortgage to buy her out?
From from personal experience having a divorce and been forced to sell my house last year, NEVER EVER EVER consider to sell your house as the first thing to do.
Try to see what options you have on refinancing through a mortgage etc to buy her out.

Except if you want a new house somewhere else.