Example

Capital gains tax Example – Principal private residence relief where the house has been let and the owner has lived elsewhere (if you you prefer to download a pdf version of this example for easy reading, click on this Capital Gains Tax example)

1. Marion bought a property as her only private residence on 30 April 1996 for £62,000.
2. She lived there until 30 October 2003
3. On 1 November 2003 she moved out to look after her elderly mother
4. From 1 November 2003 to 30 April she allowed a friend to stay in the house rent free
5. The property was then let from 1 May 2004 to 30 June 2006
6. From 1 July 2006 to 1 May 2010 when it was sold for £192,000, it was again occupied rent-free by a friend

Capital gains tax calculation for Marion
                                                                                                                                     
Sale proceeds 1 May 2010                                                                              £192,000

Cost – 30 April 1996 (assuming no improvement expenditure)                        £62,000
 
Gross capital gain                                                                                            £130,000

Reliefs available
Principle private residence relief:

Actual occupation by Marion –
30 April 1996 to 30 October 2003                                              7 years 6 months

Last 3 years of ownership
Deemed occupation 1 May 2007 to 1 May 2010                        3 years

Let to friend – no private residence relief available
Up to 3 years could by ‘absence for any reason’ if Marion had
occupied the house before and after her friend’s stay

Total period where private residence relief is available             10 years and 6 months
Total period of ownership (30 April 1996 to 1 May 2010 14 years

Principle private residence relief = £130,000 x 126 months/168          Months                                                                                                             £97,500
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Gain after principle private residence relief                                                     £32,500

Letting Relief
From 1 May 2003 to 30 June 2006 – 2 years and 2 months
Letting relief is the lower of:

• £40,000 – statutory maximum amount
• £97,500 – the principle private residence relief available in this particular case
• The gain attributable to the letting period

Gain attributable to letting period is 26 months out of 14 years x gain of £130,000                                                                                                         £20,119
This amount is used as it is lower than the other figures
_______
Capital gain after reliefs                                                                                  £12,381

Less annual exemption for 2010/11                                                               £10,100
_______

Taxable gain                                                                                                      £2,281

Tax payable – £2,281 at 18% = £410.58. Unless Marion is already registered for self assessment, she would need to inform HMRC before 5 October 2011 that she had made a gain. She would need to submit at tax return for 2010/11. Normally this would be due by 31 October 2011 if submitted on paper or by 31 January 2012 if submitted on-line. The tax would be due by 31 January 2012.