Selling your home at a loss

My house has been on the market for four months now, so I have decided to drop the asking price. However, this now means that I’m selling it as a loss. Is there any way I can utilise this loss?

Sam, Manchester

If you were to sell your house at a profit, it is unlikely there would have been any tax to pay because of Private Residence Relief (PRR). To qualify for the relief, the property must have been your only home and you should’ve used it as a home and nothing else.

The amount of PRR may have been restricted if you have a very large garden, you’ve let part of your entire home or you’ve used part of the property for business purposes.

If you would’ve qualified for PRR (had you made a gain), then I’m afraid you cannot obtain any relief if a loss was generated instead. If your PRR would’ve been restricted, then you may be able to claim loss relief for the part of the gain that didn’t qualify for PRR. But please note, these losses can only be used against other capital gains; not income.

Please feel free to contact your local TaxAssist Accountant to discuss this further.

We provide tax accountancy services in Central_Manchester and throughout the UK. http://www.taxassist.co.uk

Transferring Property on Divorce

Transferring Property on DivorceQ: I am currently in the process of divorcing my wife and as part of the settlement agreement I am passing one of my rental properties to her. My solicitor has told me I may need to pay tax, but is this true if this is part of my divorce?

Jack, Banbury.

A: Under current legislation when chargeable assets are passed between spouses, they are treated as passing at ‘no loss/no gain’ which means there is no tax to pay. In the year of separation (i.e. the year in which a couple cease living together as husband and wife) the same rule is applied, so no capital gains tax is payable.

From 6th April following separation, however, the inter-spouse rules cease and any assets being gifted between the couple are treated as passing at open market value. This can lead to a capital gains tax liability for the donor. Therefore if you separated from your wife in the current tax year and if the property is transferred into her name before 5th April, no liability will arise. On the other hand, if you separated before 6th April 2011, or if the property is not transferred before 5th April this year, you may have a capital gains tax liability to settle.

If there is a gain chargeable to tax and it occurs between now and 5th April, any tax due will become payable on or before 31st January 2012. On the other hand, if the transfer takes place on or after 6th April this year, any tax due will not become payable until 31st January 2013.

When selling or transferring property, there are many things to take into consideration with regard to the capital gain computation, especially with regard to allowable costs and various reliefs that may be available. You should therefore seek professional advice in connection with this and any other assets being transferred as part of your divorce.

We provide tax accountancy services in Banbury and throughout the UK.  http://www.taxassist.co.uk

Letting Your House and CGT

Letting Your House and CGTQ: I bought my house about seven years ago and used to live in it. But I moved in with my girlfriend about five years ago, and since then, I have let my house out.  I am now considering selling it so that we can buy a bigger house together. I know normally you don’t pay any tax when you sell your house, but have I lost this exemption because I let it out?

Scott, Whitehaven

A: As you suggested, you are entitled to Only or Main Residence relief (OMR) on the sale of your house. In your case, the OMR will be restricted because you did not occupy it for the entire time of ownership. The last three years are counted as occupation, plus you lived in it for two years. This means your OMR will be restricted to 5/7ths of the gain.

However, you are also able to claim letting relief (assuming it was residential letting) and the amount you can claim if the lower of :

1. £40,000
2. The OMR relief due
3. The amount of the chargeable gain that is attributable to the period of letting, i.e. in your case, your gain after the OMR

Depending on the values involved, this may well wipe your gain out entirely.

Capital Gains Tax is a complex area so please feel free to seek professional advice from your local TaxAssist Accountant.

We provide tax accountancy services in Whitehaven and throughout the UK.  http://www.taxassist.co.uk

Divorce and Personal Company

Divorce and Personal CompanyQ: A couple of years ago, I formed a company with my wife. We were both directors and held 50% of the shares each. Last year we split up; her shares were transferred to me and she also resigned as a director.

The company ceased trading recently, and it will be wound up informally. Can I claim entrepreneurs' relief on the whole of the capital distribution paid to me on the winding up, or will just part of the distribution qualify because I only held 100% of the shares for a few months of trading?

Michael, Halifax

A: You qualify for entrepreneurs' relief on gains arising from all your shares, as you held at least 5% of the ordinary shares for 1 year up to the date the company ceased trading, and you were also a director throughout the last year of trading.

Therefore any shares you held in the company qualify for entrepreneurs' relief, and you will pay capital gains tax at an effective rate of 10% on the capital distribution (after deduction of your annual exemption of £10,100); rather than tax at 28% or 18%.

Preparing your tax return in the year of a divorce can be tricky, so if you would like any assistance please feel free to contact your local TaxAssist Accountant.

We provide tax accountancy services in Halifax and throughout the UK.  http://www.taxassist.co.uk

Setting Trading Losses Against Capital Gains

Q: I made a loss in my soletrader business this year, and sold a number of shares I own to supplement my living expenses. I estimate that selling these shares will realise a capital gain after relief’s of £30,000. Can I claim relief for any of my trading loss against the gains I have made?

Judy, Bournemouth

A: Yes, a loss relief is available that allows individuals to offset self-employed losses against any capital gains you have made in the same tax year.  

You must first offset the trading losses against your total other income for the tax year, even if this means losing the benefit of your tax free personal allowance. Any excess can then be extended under section 71 of Income Taxes Act 2007 (ITA 2007) and set against your chargeable capital gains (after capital gain losses have been accounted for) for the tax year.

Alternatively, you can choose to carry the loss back to the previous year, first against other income (s64 ITA2007), and then against capital gains (s72 ITA2007).

If you do not have any other income in the tax year, tax relief on your trading loss is claimed against your capital gains of £30,000. This will result in a significant fall in your capital gains tax liability.

However, be aware that the capital gains tax rates are currently only applied at 18% of any gain, and it may therefore be beneficial for you to consider carrying the losses forward to obtain income tax relief in a later year at a higher rate.

Your local TaxAssist Accountant can advise on the most tax efficient option available to you with a quick calculation.