Tax / CGT guidance

[Tyler Durden]

Would appreciate some guidance on a hypothetical scenario (:wink:)

A second property was let out for a period of 5+ years. Ownership was joint between ex partners who split but retained the property until the market picked up. No tax was declared by either party, property was basically just ticking over.

One party then buys out the other. Starts declaring the income on their tax return. The now sole owner then sells the property. When declaring the sale for purposes of Capital Gains, will the CGT return look into prior income tax paid over a longer period (ie full period of ownership)?

I'm thinking this is a non issue but wondered if anyone has recently been through that CGT return or a similar scenario, who might be able to shed some light? Appreciate the right answer here is probably to seek proper advice.

[Onceinawhile]

Would appreciate some guidance on a hypothetical scenario (:wink:)

A second property was let out for a period of 5+ years. Ownership was joint between ex partners who split but retained the property until the market picked up. No tax was declared by either party, property was basically just ticking over.

One party then buys out the other. Starts declaring the income on their tax return. The now sole owner then sells the property. When declaring the sale for purposes of Capital Gains, will the CGT return look into prior income tax paid over a longer period (ie full period of ownership)?

I'm thinking this is a non issue but wondered if anyone has recently been through that CGT return or a similar scenario, who might be able to shed some light? Appreciate the right answer here is probably to seek proper advice.


1) how long ago was this - you say it was just ticking over - I assume this is including the mortgage, in which case, are you aware of the changes to the allowability of mortgage interest over the last 5 years or so?

2) The income tax position over previous years won't automatically be looked into, but it could be a trigger, if it flags up on HMRC's radar.

3) was any CGT paid for when the 1/2 share of the property was sold to the ex-partner?

[Tyler Durden]

1) how long ago was this - you say it was just ticking over - I assume this is including the mortgage, in which case, are you aware of the changes to the allowability of mortgage interest over the last 5 years or so?

2) The income tax position over previous years won't automatically be looked into, but it could be a trigger, if it flags up on HMRC's radar.

3) was any CGT paid for when the 1/2 share of the property was sold to the ex-partner?

Roughly it would be 2014 - 2022. It was let privately and the rent would cover the mortgage, probably with a small surplus annually, maybe up to £500.

From 2022 one party bought the other out. Income tax was declared from that point onwards so the point re mortgage interest was captured accordingly based on guidance then.

Re CGT, I'm on the buying side at that point, so couldn't say whether the person who was bought out, did anything re their tax obligations. Hope that makes sense.

[CropleyWasGod]

Roughly it would be 2014 - 2022. It was let privately and the rent would cover the mortgage, probably with a small surplus annually, maybe up to £500.

From 2022 one party bought the other out. Income tax was declared from that point onwards so the point re mortgage interest was captured accordingly based on guidance then.

Re CGT, I'm on the buying side at that point, so couldn't say whether the person who was bought out, did anything re their tax obligations. Hope that makes sense.

When you say the rent covered the mortgage, was it an interest-only mortgage? If not, you can only claim for the interest part of the payment, not the capital. And, as Onceinawhile says, in the latter years the amount of interest that can be claimed has been reducing steadily.

This might help:-

https://www.taxassist.co.uk/resources/questions-and-answers/can-i-claim-mortgage-interest-as-a-deduction-on-my-rental-property-accounts

[Tyler Durden]

When you say the rent covered the mortgage, was it an interest-only mortgage? If not, you can only claim for the interest part of the payment, not the capital. And, as Onceinawhile says, in the latter years the amount of interest that can be claimed has been reducing steadily.

This might help:-

https://www.taxassist.co.uk/resources/questions-and-answers/can-i-claim-mortgage-interest-as-a-deduction-on-my-rental-property-accounts

Thanks.

I guess the question was almost, if no income tax return was submitted for those earlier years, is it best to raise that now with HMRC or simply ignore it? Doesn't sound like it is necessarily something that is considered in the CGT return

[CropleyWasGod]

Thanks.

I guess the question was almost, if no income tax return was submitted for those earlier years, is it best to raise that now with HMRC or simply ignore it? Doesn't sound like it is necessarily something that is considered in the CGT return

The CGT Return is separate, and won't ask for any previous income.

My advice would always be to approach HMRC before they approach you. If they get to you first, the penalties will be more severe than if you do it. (and you'll probably sleep better :greengrin)

You might be surprised at how little they're actually looking for, once you take into account all your expenses. It might not be a bad idea to estimate that first, so that you have a rough idea before you dive in.

[Onceinawhile]

Thanks.

I guess the question was almost, if no income tax return was submitted for those earlier years, is it best to raise that now with HMRC or simply ignore it? Doesn't sound like it is necessarily something that is considered in the CGT return

Professional opinion: as cwg says below, you are best to tell HMRC before they ask you. Penalties can be pretty prohibitive if they ask you, if you tell them, they can be nil.

You should always make sure your tax position is correct.

Unprofessional opinion: most likely, hmrc won't pick up on it. They'll assume because it was jointly owned that you were living in and it only got rented out at the change of ownership. So you'll probably be OK.

[Tyler Durden]

Professional opinion: as cwg says below, you are best to tell HMRC before they ask you. Penalties can be pretty prohibitive if they ask you, if you tell them, they can be nil.

You should always make sure your tax position is correct.

Unprofessional opinion: most likely, hmrc won't pick up on it. They'll assume because it was jointly owned that you were living in and it only got rented out at the change of ownership. So you'll probably be OK.

Thanks guys :thumbsup:

I think the person in question probably values the peace of mind and will want to approach the taxman.

[CropleyWasGod]

Thanks guys :thumbsup:

I think the person in question probably values the peace of mind and will want to approach the taxman.

Good call.

Remember that HMRC get their intelligence from many sources. Even just posting on here might raise an eyebrow or two.