Angela Rayner's kitchen renovation might save her from her capital gains tax problem.
Greater Manchester Police launched an investigation into Ms Rayner after it was alleged she failed to pay capital gains tax on a property she sold in 2015.
Ms Rayner has repeatedly stated no capital gains tax is owed on the property but failed to explain why. However, she has revealed she carried out a kitchen renovation on the property before selling it. Here we explain why this may end up meaning she no longer owes HMRC any tax money.
Why does Rayner owe capital gains tax on the home?
Angela Rayner is facing an enquiry into whether she failed to pay capital gains tax on a council house she sold in 2015.
Capital gains tax on properties is a tax on the profit made from selling a property that has increased in value. The tax is calculated on the difference between the property's purchase price and its sale price. However, sales of residential properties often benefit from private residence relief, meaning no capital gains tax is owed where the property owner lived in the home as their main residence and did not let it out during this time.
This is what Rayner claimed, but she was married at the time and married couples can only claim one main residence as they are seen as one entity legally and assumed to live in the same property together. There is no exemption for this, even when a married couple lives apart, for instance if they separate during divorce proceedings. In Rayner's case both her and her ex husband claimed different primary residences and two sets of private residence relief.
However, despite this, Rayner maintains that she owes no capital gain tax although some have alleged she owes up to £3,500 to HMRC.
Rayner claims property was her main residence
Angela Rayner claims she has consulted with her advisors who have told her she owes nothing in tax after claiming the property was her main home.
Initially Rayner stated: “As with the majority of ordinary people who sell their own homes, I was not liable for capital gains tax because it was my home and the only one I owned.”
When someone sells their main home, they usually don't pay capital gains tax, however, married couples can only have one main home for tax purposes.
Since Angela married her husband Mark Rayner in September 2010, they could only claim one main home from that date.
How could her kitchen renovation come to the rescue
What could now become crucial is the kitchen renovation for her council house.
Angela Rayner installed a new kitchen in the council house she sold and this work would count as an "enhancement expenditure" and would be taken into account when calculating any profit she made on the property's sale.
Rayner sold the house in 2015 for £127,500, representing a £44,500 profit, 52% of which would need to be taxed, although £11,000 is exempt. This would mean £12,140 could be taxed.
If her kitchen renovation costs amounted to this figure, or was more than it, then no capital gains tax would be owed, but it not known how much the renovation cost her.
Greater Manchester Police are still investigating the matter with Rayner promising to step down from her position as deputy leader if she is found guilty.
