Capital Gains Tax is a tax on the increase in value of assets that have been sold, based on the day they were bought and then sold. The law governing capital gains tax is the Chargeable Gains Act 1992. Stamp duty land tax is a tax imposed on the owner of a property when his property exceeds a certain sum of money. In this essay I will shed light on capital gains tax and stamp duty land tax and the implications these taxes will have on Trisha. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay 1965 was the year capital gains tax was first introduced. And the transfer of assets was carried out. Therefore the tax is applied on the monetary difference from the moment the good was first purchased and then sold. Look at the value of the asset on the market when it was first purchased and then when it was sold. Expenses that increased the value of the property can be deducted. The person responsible for paying Capital Gains Tax (CGT) is the person who sold your asset. However, it is important to note that some things are exempt from taxation such as the principal residence (in this case; the Elm cottage which is Trisha's principal property); cars and motorbikes and any assets acquired before September 1985. Key legislation relating to capital gains tax is available on the Government website which gives us an example of how capital gains tax is calculated; “You bought a painting for £5,000 and later sold it for £25,000. This means you have made a gain of £20,000 (£25,000 minus £5,000)” The government also provides various ways in which a property can be disposed of, which would mean the taxpayer would have to pay capital gains tax/this includes; give the asset away to someone, or transfer it, exchange it for something else and get some sort of compensation for it. Private residence relief is one of the ways in which a property owner can avoid paying capital gains tax. This applies if you owned a home as a first-time owner and spent most of your ownership time living there. In this case Trisha did not live continuously in the Elm cottage as it was not her primary residence. “Private residence relief allows most homeowners to sell their homes without being subject to any capital gains tax on their property profits. Private residence relief can also help you reduce capital gains tax liabilities when you sell a second home or sell off part of your garden.” It is important to note that there are different conditions for full entitlement to private residence relief; “The dwelling house has been your sole or principal residence throughout the period of ownership. You have not been absent, other than for a permitted period of absence or because you have lived in work-related accommodation, during your tenure. The garden or land including the buildings does not exceed the permitted surface area; no part of your home has been used exclusively for commercial purposes during the period of ownership.” However, if not all of these conditions are met, partial relief may still be granted. Courts have emphasized the term "residence" when addressing the issue of private residence. They suggested that the term could include parts of the main building, for example the garden. As mentioned above, there needs to be a degree ofoccupant of the property who may be subject to capital gains tax. Occupying in this case requires a certain level of permanence. For example, in Trisha's case, as she only lived in Elm's cottage for 2 years and then rented it out. It will be exempt from the private residence exemption. But he may have the right to grant relief. However, capital gains tax will be applied to the property he plans to sell with the money he gets from the Elm cottage. As it will be a rental property. On the other hand, according to the most recent government publication regarding capital gains tax; The relief is applicable when a taxpayer rents out the entire main home/former main home or even a part of it as residential accommodation. Lettings Relief first came into force in the 1980s because the government encouraged people to rent extra or unused rooms in their property without losing Primary Residence Relief. For example; if "Susan bought a house for £200,000 in 1998, selling it for £350,000 in 2018. Throughout that time she lived in the house as her sole residence, but rented out two spare rooms representing 25% of the property to tenants who had the exclusive use of their rooms (and their rooms only). and is entitled to claim PRR on 75% of the property covering £112,500 of the gain. The part of the gain attributable to rent and not eligible for PRR is £37,500. As the rent relief is due to the lesser of: • The rent relief. amount of the PRR (£112,500), or • £40,000, or • The gain attributable to the rental (£37,500), the amount of rental relief payable is £37,500 and the entire gain is exempt from CGT”. avoid paying the full amount of capital gains tax through tenancy relief, you should live at The Elm Cottage for a minimum of two years before renting the property, in which case you meet the requirements, then Trisha will be entitled to tenancy relief . Additionally, other properties Trisha plans to purchase may be subject to stamp duty land tax if it exceeds a certain amount. This tax can be imposed on both real estate and leasehold property. As Trisha is planning to buy apartments; they are typically leasehold assets as you acquire them for a certain period of time from the owner; who is the person who outright owns the land on which the apartments are located. “The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and property.” Stamp duty land tax must be paid within 14 days of purchasing the land. Having representation such as a solicitor or conveyancer makes this process easier as they will carry out this process on Trisha's behalf. As Trisha is not buying a property for the first time, she will not be entitled to relief on stamp duty land tax. However, if the lease of the apartments that Trisha intends to purchase is less than 7 years and the amount for which it was purchased is less than the amount specified for the non-residential or residential stamp duty land tax threshold. The current amount is £125,000. The stamp duty land tax calculation is based on the type of tenancy that exists (the assumption that the property is a tenancy is based on the nature of the typical flat purchase). Therefore, a lease could be assigned as an existing one or it could be a new one.