'I bought a house that my parents lived in rent-free. How much capital gains tax do I now need to pay?'
Every week, The Telegraph’s Property Doctors bring expertise on renovations and DIY, interiors, buying and selling, lettings, legal issues and taxes – addressing three topics.
Since 1989, the house remained empty for a total of three years while it was being refurbished, and the rest of the time it was rented out to paying tenants. Last year we decided to sell the property, and have since done extensive repairs on it. How much CGT to we owe?
KG, St HelensA Assuming you have never lived in the house other than as a child, main residence relief is not a consideration. Although you first bought the house in 1968, for CGT purposes assets owned before March 1982 are “rebased” to their market value at that date; the March 1982 market value is therefore your cost. It can be difficult getting historic valuations but a local surveyor can help. After the house has been sold and before your tax return is filed, you can ask HMRC for a “post valuation check” to confirm the value used.
You can deduct the costs of any capital improvements you have made to the property over the years, provided the works are reflected in the property at the date of sale. For example, if a new bathroom was fitted in 1990 and then replaced in 2019, only the 2019 costs should be deducted. In addition, “like-for-like” replacements are not considered capital expenditure, so if the new bathroom was not an upgrade on the previous one, HMRC may not consider this a capital cost. Similarly, replacing a laminate kitchen worktop with a granite worktop should be considered capital, but replacing it with the same or a similar value material would not.
Such replacement, repairs and maintenance costs should have instead been claimed against your rental income. You should also try to ensure that receipts are available in case HMRC query the costs claimed. Given the amount of work done in 2019, it may be that a proportion of the costs are capital (and deductible) and a proportion are not.
As the house is jointly owned with your wife, you should each declare 50 per cent of the gain on your tax return. To the extent that your share of the gain exceeds your annual exemption (£12,000 each in 2019-20) CGT will be due at either 18 or 28 per cent, depending on your circumstances.
Stefanie Tremain is a private client adviser specialising in UK tax at accountancy firm Blick RothenbergLettings Q My letting agent manages my two flats. But he doesn’t tell me when tenancies start and the rent arrives three months late. He agreed to pay me back £5,000, but nothing has been done. What can I do?
ap, by emailA You have been incredibly patient to suffer this situation for so long. Your letting agent has clearly been using your funds to bankroll his own business and is operating improperly.I would take a two-fold approach. Firstly, I would immediately instruct a solicitor to take action for the recovery of rent. Once that has started, the solicitor would possibly recommend contacting the tenant and asking them to make future payments direct to you or, if you would prefer, another agent.
Secondly, all agents must belong to an ombudsman scheme. You or your solicitor need to ensure your agent is a member. The ombudsman will only handle a complaint if the agency is registered with their scheme.If he isn’t registered, then you are dealing with an unregulated firm, which may throw up other issues such as the protecting of deposits and potentially, the legality of any tenancy agreement.
Phil Stewardson is a landlord and runs Stewardson Developments (stewardsondevelopmentsltd.co.uk)Legal issues Q I live on a small development of freehold houses, which, when they were built 10 years ago had a covenant on the deeds saying they could not be let out as holiday homes. I am dismayed to find that my immediate neighbours are renting out their bolt-hole to holiday makers, which I feel breaks the covenant.
The management committee’s remit only extends to looking after the areas of block paving. I suspect that, 10 years on, the developer would be unlikely to be interested in enforcing the covenant, or would they?JM, by emailA Unfortunately, this is a complex area. The answer depends on who is entitled to enforce the covenant against holiday home use. You could only enforce the covenant yourself if there is what is known as a “building scheme”.
In order for there to be such a scheme, the transfers of all the houses would have to include the same restrictive covenants and it would have to have been made clear that the intention was that any owner could enforce the covenants against any other.
I would strongly advise that you, and any other of your neighbours who are also concerned about this apparent breach of the covenant take legal advice. If necessary, you would have to apply for an injunction preventing the use as a holiday home, which would be expensive.
Even if you were able to obtain an injunction, it would be difficult to police. Someone would have to keep an eye on the internet to see if the property was being advertised as a holiday let. It might also be worth checking with your local council whether planning permission should have been granted for the holiday home use.
Normally that is not required but certainly in London there are special rules that prohibit lettings for less than 90 days in any one year. Similar laws may apply elsewhere. Read more: The Telegraph »
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