The tale of the sale of our old house

[Jeremy Harris]

Just now, ProDave said:

That sounds hopeful and the rest of the process can now proceed.

 

So Octopus have something like the estimated 4 weeks to exchange to come up with an account number for you.  Then let the buyer have the "fun" of switching if they wish.

 

Were you also with IRESA at the new house?

 

According to OFGEM. Octopus now have a little under 3 weeks to complete the transfer and ensure that I have the new account details, but Octopus wouldn't agree they could do that when I spoke to them, and refused to even estimate a date by which the transfer would be completed.

 

Thankfully we're still with SSE at the old house, more out of laziness than anything else, as I just haven't bothered switching as the bill is so low.  I'm looking around now for deals, but I'm strongly disinclined to use any of the small, flaky, companies, given my experience with Iresa and now Octopus.  Even SSE are better to deal with, and that's saying something!

[Hecateh]

From the MSE website

 

Quote

Here are the need-to-knows:

• You won't lose your energy supply.
• Your electricity will be transferred over at 00.01am and gas at 05.01am on Wed 1 Aug.
• All Iresa's customers will be moved onto the Flexible Octopus tariff – it's the supplier's cheapest but is likely to be pricier than Iresa's deals and at an average £955/year based on typical use it's about £100/year more than the market's cheapest. It's a variable rate with no exit fees.
• Ofgem says Octopus will contact you by Tue 14 Aug with tariff confirmation and new contract details.
• As Octopus may not be your cheapest deal, it's wise to check if you could save by switching. But only sort this once it's contacted you to confirm you've been transferred. Then you can switch penalty-free so do a full market comparison on our free Cheap Energy Club.
• If you're in credit with Iresa, Octopus says it'll pay this back to you. You can use it to offset future use or just have it paid back to your current account. It's unclear when this'll happen just yet.
• Take a meter reading to be safe, in case you later have a billing dispute.

 

which is saying will all be sorted in 2 weeks (I won't hold my breath)

[jack]

17 minutes ago, JSHarris said:

 Another agreement allows anyone with a grandparent born in Ireland to be granted Irish citizenship by a very simple process of providing the evidence so their name can be added to the register in Dublin. 

 

Yes, I knew about that one. My parents are Irish and my sister has an Irish passport. I may get one depending on what Brexit ends up looking like.

 

My kids are also entitled to one, so it'll just be the poor missus standing at immigration trying to blag her way into Europe when we go on hols.

[Jeremy Harris]

6 minutes ago, Hecateh said:

From the MSE website

 

 

which is saying will all be sorted in 2 weeks (I won't hold my breath)

 

 

The key here is that Octopus aren't confirming that they will, quote:

 

Quote

Ofgem says Octopus will contact you by Tue 14 Aug with tariff confirmation and new contract details.

 

This is what I rang to check, and they said the time period was open ended, that they hadn't yet received any data from Iresa and couldn't estimate when they would either receive the data or be in a position to switch our supply to Octopus.

 

OFGEM support that quote, it's Octopus who told me, very clearly, that they could not honour it, in effect.

[Jeremy Harris]

11 minutes ago, jack said:

 

Yes, I knew about that one. My parents are Irish and my sister has an Irish passport. I may get one depending on what Brexit ends up looking like.

 

My kids are also entitled to one, so it'll just be the poor missus standing at immigration trying to blag her way into Europe when we go on hols.

 

 

There's another interesting quirk in that any Irish citizen has a permanent right to live and work in the UK, a right that's existed for decades before either the UK or Ireland joined the EU.  All those old agreements that cover trade, free movement etc, between Ireland and the UK are still in force and still apply, and if you read through them you have to wonder quite why such a fuss is being made about the Irish border WRG to Brexit.  I've crossed that border in pre-EU days many times, and the only time it wasn't wholly open was during the troubles, when  some border crossings were manned simply as an an anti terrorist measure.

[jack]

1 minute ago, JSHarris said:

There's another interesting quirk in that any Irish citizen has a permanent right to live and work in the UK, a right that's existed for decades before either the UK or Ireland joined the EU. 

 

My parents lived in the UK for several years in the early 70s based on that right.

 

2 minutes ago, JSHarris said:

All those old agreements that cover trade, free movement etc, between Ireland and the UK are still in force and still apply, and if you read through them you have to wonder quite why such a fuss is being made about the Irish border WRG to Brexit.  

 

Ireland's relationship with the EU is the complicating factor. I don't presently see any approach to the Irish border that will satisfy the UK, Ireland and the EU, made worse by the fact that the EU seems intent on using it as a cudgel - or should that be shillelagh? - with which to beat the UK.

 

[Declan52]

I would say it's more a case of having got into bed with the DUP to save her own skin there narrow minded view of the world is skewing a lot of what she might have wanted to do.

[joe90]

I don’t know how competitive they are now but I went with green energy for our site (yet to work out house usage) mainly because of no standing charge as our usage would be small. Their customer service is excellent and I would recommend them. They recently confirmed that with a charge of £150 to change the meter they would supply E7 or E10.

[jack]

25 minutes ago, Declan52 said:

I would say it's more a case of having got into bed with the DUP to save her own skin there narrow minded view of the world is skewing a lot of what she might have wanted to do.

 

No doubt there's an element of that.

[joe90]

2 hours ago, jack said:

All those old agreements that cover trade, free movement etc, between Ireland and the UK are still in force and still apply, and if you read through them you have to wonder quite why such a fuss is being made about the Irish border WRG to Brexit.  

 

I did not know that, I am tired of politics, jobs for the boys. Frankly if the EU want a hard border let them put one up, why should we do it, let them find a solution ?

Back to building!

Edited August 2, 2018 by joe90

[ProDave]

May I suggest we keep this to the topic of the house sale. If you want to talk BREXIT go and start a new thread in the general discussion forum please.

 

Mods.

[jack]

52 minutes ago, ProDave said:

... go and start a new thread in the general discussion forum please.

 

Or better yet, don't!

[Jeremy Harris]

Just heard from Octopus, who have acted quickly, confirmed they are my energy supplier and given me the account number I now have with them.  Pity it took a strong email to their complaints people to get a response - the effing numpty on their telephone help line could have actioned this, had he been so inclined, rather than making me go to OFGEM and then through the Octopus complaints procedure.

 

Anyway, our conveyancer now has the details of the account and Octopus will be set up to switch/close the account as soon as we tell them our completion date.

 

I get the feeling they are like a lot of the smaller suppliers; running right on the very edge, and often taking on more business than they can handle.  Bidding to take on all Iresa customers to OFGEM may well have overloaded their ability to provide reasonable customer service.

[le-cerveau]

16 minutes ago, JSHarris said:

Pity it took a strong email to their complaints people to get a response

A classic case of he who shouts loudest (threatens them with the ombudsman).

The majority of customers won't be bothered how long it takes to transfer and will happily accept crappy customer service whilst doing so.  This (customer service) issues reminds me of my run in with BT who cut me off after moving the phone line to the re-build from the site box and took over a week to re-connect a fully functional phone line (and have the cheek to charge me for it) after months of faffing around.  I had to e-mail the MD with my OFCOM timeline (3 months) to get any traction.

[newhome]

3 minutes ago, JSHarris said:

I get the feeling they are like a lot of the smaller suppliers; running right on the very edge, and often taking on more business than they can handle.  Bidding to take on all Iresa customers to OFGEM may well have overloaded their ability to provide reasonable customer service.

 

I think so too but you can’t blame them from chasing business. Anyone with Iresa as a supplier must surely have shopped around for the best deal and switched so I imagine a large number will switch away from Octopus in due course so they may not increase their customer base much in the longer term. 

[NSS]

Bit of a random question, Jeremy, but have you still been living in the old house until now?

[Jeremy Harris]

17 hours ago, NSS said:

Bit of a random question, Jeremy, but have you still been living in the old house until now?

 

 

Yes, mainly because we've been advised that if we moved before having the sale of our old house was well underway, there was a good chance that HMRC would no longer consider our old house to be our principal residence and it might then be classed as a second home.  As we've owned it for over 18 years, there was a fair chance that we could get hit with Capital Gains Tax on the difference between what we paid for it in 2000 and what we sell it for in 2018.

 

We've been going to the new house most days, doing small jobs, or sometimes me just working over there (I do some consultancy work), really just finishing off things and making sure it was regularly occupied during the day, to keep the insurance company happy, and doing things like keeping the grass cut, planting up more of the landscaping, doing some fencing, clearing stuff out we no longer needed, etc.

[ProDave]

The Primary Residence relief covers the period you occupy the house as your primary residence AND the last 18 months of ownership regardless of use.

 

So as long as you  can prove it was your primary residence until no earlier than 18 months ago, then you should not have any capital gains tax to pay, even if you were letting it for that last 18 months.

 

Our old house is currently under that, having now been let for 15 months.  Even after the 18 months is up, there will then be a letting relief figure to apply (a more complicated "lesser of 3" calculation) and if that calculation shows some taxable gain, then there are two personal capital gains tax allowances to use up before you become liable to pay anything.  So unless we rent our old house for many many years, there should be no CGT to pay,.

 

If CGT is due, they take the purchase price and sale price (including all expenses) and assume a linear gain throughout the ownership and apportion it monthly for any period where CGT may be due.

[Jeremy Harris]

Thanks for that, it seems I've been poorly advised. 

 

I spoke to my accountant about it about three years ago, and it was his advice not to move until we'd sold the old house that I took as gospel.  I'm due to see him next month to check though my consultancy earnings and try to find a more tax efficient way to manage them - this year has been a  bit of an exceptional one, with me earning around five times more in six weeks than I normally earn in a year.  I will raise this with him again and see what he has to say for himself, especially if it turns out to be as you say and there is an 18 month relief period.  He led me to believe that there was a 6 month discretionary period, during which, in his words, "HMRC tended to turn a blind eye", but even that wasn't guaranteed.

 

Admittedly he deals almost wholly with sole traders and the self-employed, rather than property taxation, but I'd have still expected him to give me sound advice on this.

[ProDave]

That is what I was told on the MSE site. I too was worried that I might accumulate a CGT liability by renting it, but it seems you would have to rent it quite a long time before that is the case if it has been your primary residence for a long time first.

 

The exact wording of what I was told is here

 

Quote

 

you have not stated who the owner is but you imply he is the sole owner? I will take as read that you are legally married to each other and that as the property has now been sold it is too late to take advantage of that fact. So the mechanics of a PRR and LR calculation are as follows:

1. Work out the Gross Gain
The gain is the difference between what it cost to buy and what it sells for, less any costs associated with its purchase (eg legal fees and SDLT paid) and costs associated with its sale (eg legal fees and estate agent fees). Although not mentioned in your case, the costs of any capital improvements can also be deducted, but not the cost of any work which is merely doing repairs (the distinction between the 2 needs a separate much longer explanation so I'll ignore it for now).
You should be able to support any amounts claimed as costs by being able to produce original invoices/receipts if HMRC challenge you to do so.

In your case, as there is only one owner, the entire gain is attributable to that person only, so sale price 90 less purchase cost 17,500 = 72.5 less 2,500 costs = Gross Gain 70,000

all other values are irrelevant. The discount/ market value on purchase is irrelevant, the "value" when let is irrelevant.

that gain spans the full ownership period 1997 - 2017 = 20 years. In reality the period should never be measured in years as that is not precise enough to deal with exact start and stop of letting periods and occupation periods. You should use months (or if you wish, exact days)

2. Claim Private Residence Relief (PRR) amount
If the owner lived in the property as their only/main home they are entitled to claim PRR for that period. if that is the case the PRR automatically also includes the final 18 months of the ownership of the property irrespective of whether it was lived in, let, or remained empty for that final period (for example because the tenant had moved out and it was being advertised for sale, not being advertised for letting).

In your case we don't have the months count, so purely for illustration purposes we'll stick with your year dates meaning as it was let "from 2010" it ceased to be main residence in 2009. Thus, main residence period 1997 - 2009 = 13 years + final 18 months = total PRR period 14.5 years

PRR amount £70,000 x 14.5/20 = £50,750

(Note - "main residence" is a concept rather than a fixed definition, and if in doubt will be judged on the facts of each individual case. The key points are actual occupation with a degree of permanence, continuity or expectation of continuity. Marriage also impacts it.)

3. Claim Letting Relief (LR)
Where a property which has at some point in its ownership been a main residence is at another time let, then you can claim LR for the period it was physically tenanted and any intermediate periods when it was void but was actively being marketed for let. If there is no claim to PRR then you cannot claim LR.
Obviously your evidence to support your claim will be the signed tenancy agreements, your bank account showing rental receipts, your income tax returns declaring the rental profits, and any dated adverts for "property to let". If it was still being let during the final 18 months of ownership you cannot double count that period as it is already included in the PRR so the let period may need to be adjusted to exclude the final 18 months

Crucially, the LR amount is restricted to the lowest value from 3 calculations:
a) the amount of PRR calculated in step 2 above
or
b) the amount of gain calculated for the let period
or
c) The max amount allowed which is £40,000

In your case:
the letting was from 2010 to 2017, but that includes the final 18 months so the let period is 7 years - 18 months = 5.5 years

always do the sense check that the ownership period has been fully accounted for as there may be a period when neither PRR nor LR apply, eg. there may have been a period when the property was not let nor lived in as the main residence, ie. it was merely a second home and thus no relief available for that period. In your case however it is straightforward: PRR + LR equals total ownership 14.5 + 5.5 = 20 !

The lowest LR amount is:
a) PRR = £50,750
b) gain in let period 70,000 x 5.5/20 = £19,250
c) max allowed £40,000

in your case the lowest is b) £19,250

4. Calculate the net taxable gain

Each person who has a share of the gain gets an "annual exempt amount" (the AEA is given in the year of sale only on a use it or lose it that year basis, you cannot carry forward any unused amounts from previous years) and for 1/19 tax year it is £11,700

So in your case as there is only one owner, the net taxable gain is Gross gain - PRR - LR - (if needed) the AEA = 70,000 - 50,750 - 19,250 = ZERO (- 11,700 if needed)

In other words none of the annual exempt amount is needed as the gain is already at zero, so in this case the sole owner has no tax to pay at all as the liability is relieved in full.

If there was more than one owner the gross gain is split according to the respective ownership share and each person then calculates their own PRR and LR on their respective share. That is however irrelevant for you as there is only one owner.

5. Pay any CGT due
if the net taxable gain is >£0 you will have to pay CGT on it at the rate of 18% and/or 28%. CGT is not income tax, it is not the 20% you seem to think it is.
The calculation is simple but long winded to explain... the threshold for when the 28% starts is the (income tax) higher rate threshold and applies to your "total taxable income" which means your income subject to income tax, less your income tax personal allowance, but plus your net taxable CGT gain.

For example, suppose you have a salary of 20k and a net taxable gain of 40k. Your "total taxable income" will be income subject to income tax (20 - 11.85 income tax 18/19 personal allowance) = 8.15 + 40k net taxable CGT gain = 48.15k "total taxable income".

The higher rate tax threshold for 18/19 is 34,500, so your total taxable income is above that threshold, and thus some of your gain will be taxed at the 28% CGT rate.

The calculation would be this: 34,500 - 8.15 = 26.35k tax at 18% = £4,743
plus
40k total gain - 26.35k already taxed at lower rate = 13.65k @ 28% = £3,822

So for a 40k CGT liability based on someone with 20k of income taxable earnings you'd pay 4,743+3,822 = £8,565 CGT (an effective composite tax rate in this example of 21.14%)

You will declare this calculation on your annual tax return and therefore you have to pay any tax due by the final deadline for a tax return, namely by the 31 Jan following the end of the tax year in which you made the gain, so for a gain made in 18/19 you need to pay by 31/1/20

steps 1 - 5 can be understood in full detail by reading:
https://www.gov.uk/capital-gains-tax

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64200c

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64738

https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18
 

 

 

Perversely, it looks like if a property that has been your primary residence, is going to be left empty for more than 18 months, you can reduce or eliminate your CGT liability by letting it and claiming the letting relief (only available if it has at some time been your primary residence)

 

In my case it looks like I will be liable only for the letting gain less the final 18 months. And when you take into account TWO CGT allowances, that would need to be in excess of £22K gain before we would have to pay anything. Which unless prices suddenly rocket before we actually sell it, would be about another 4 years of rental. If the tenant has not bought it by then he would be out and it would be back on the market anyway before that.

[newhome]

45 minutes ago, JSHarris said:

especially if it turns out to be as you say and there is an 18 month relief period

 

There is definitely an 18 month relief period. 

 

Tax when you sell your home - Official Government Page

Periods that always qualify for relief

No matter how many homes you own or where you lived at the time, you always get relief for the last 18 months before you sold your home. It must have been your only or main residence at some point while you owned it.

[Jeremy Harris]

Thanks very much for that, @ProDave and @newhome. I should have been more diligent and checked further rather than just trusting the word of my accountant after an ad hoc enquiry (I was seeing him for my annual "dump a box of paper with him" session and only mentioned CGT in passing).

 

In our case, if it were not for the 18 month relief period the gain may have been substantial.  The difference between the purchase price and the sale price is about  £140k, so, depending on the complex sums mentioned, plus the fact that we both own it, then there could, possibly, have been a fairly high liability.

 

No need to worry about it now, though, as having found out that our house is being bought by a charitable religious trust I think there's a very slim chance that the sale could fall through.

[NSS]

11 hours ago, JSHarris said:

 

 

Yes, mainly because we've been advised that if we moved before having the sale of our old house was well underway, there was a good chance that HMRC would no longer consider our old house to be our principal residence and it might then be classed as a second home.  As we've owned it for over 18 years, there was a fair chance that we could get hit with Capital Gains Tax on the difference between what we paid for it in 2000 and what we sell it for in 2018.

 

We've been going to the new house most days, doing small jobs, or sometimes me just working over there (I do some consultancy work), really just finishing off things and making sure it was regularly occupied during the day, to keep the insurance company happy, and doing things like keeping the grass cut, planting up more of the landscaping, doing soem fencing, clearing stuff we no longer needed, etc.

Oh, okay, the way you speak about the performance of the house I’d assumed you’d been living in the new one for a while now. If you spend a fair bit of time there already I guess it won’t make a huge difference to the way it reacts, although we do, for example, find cooking (in particular) has quite an impact on he indoor temperature.

[ProDave]

30 minutes ago, NSS said:

Oh, okay, the way you speak about the performance of the house I’d assumed you’d been living in the new one for a while now. If you spend a fair bit of time there already I guess it won’t make a huge difference to the way it reacts, although we do, for example, find cooking (in particular) has quite an impact on he indoor temperature.

We find just sleeping in our bedroom raises the temperature 1 degree overnight. Never been in a house that does that.

[NSS]

24 minutes ago, ProDave said:

We find just sleeping in our bedroom raises the temperature 1 degree overnight. Never been in a house that does that.

You sure all you’re doing is sleeping?