My ongoing saga that started in December 2006 with trying to find somewhere to live has filled many blog postings here. To recap, back at the end of 2006 I was forced to leave one house by my landlord wanting the house back. Then in May 2007 (though I did not leave until December) I was forced by the harrassment of the landlord and his defaulting on the mortgage to leave another house. Then there was the aspect of trying to sell my London flat, which I had left behind when I had found work in other areas and being charged £16,500 (€20460; US$26,070) by Newham Council for the privilege of owning a flat in their borough.
Back in June 2008 I embarked on what I hoped to be the final stage: finding out what the capital gains tax was on the sale of my flat. I had to pay capital gains tax as I had left the flat in 2001 to find work in Milton Keynes and so my flat stopped being a home and apparently became business premises. I was making good rent from it about £6-7000, before tax, per year (€7,440-8,680; US$9,840-11,060) though obviously the last couple of years' rent were entirely wiped out by paying off Newham Council's charges. The advice I had always received from bankers, estate agents, etc. was to keep hold of the property because it would rise in value and make me a good profit. No-one ever said to me that I would be hit by a huge capital gains tax bill when I sold it. As it was, I sold the flat at £131,000, probably £9,000 less than it was worth because I used David Daniels, the most conniving estate agents in East London. They tried to get me to sell it at £115,000 whereas similar flats were going for £155,000. I accepted a lower price, because, due to the pressure from the landlords mentioned above I needed to move fast and get out of the rental sector.
Anyway, when I became aware in June 2007, six months before I sold the flat, that I would be liable for capital gains tax (something I had never dealt with before), I contacted the Inland Revenue & Customs (as the tax office is now known in the UK) and they advised me that the charge would be around £6,600. I budgeted for that amount. I did, again encouraged by bankers, estate agents and family, buy into a house which was too expensive for me and had to borrow to the maximum. With hindsight that was a grave error. I should have abandoned the town I was living in as being too expensive and gone somewhere cheaper. However, staying in the area kept the 6-year old boy in the house at the school he had been at since starting aged 4, so there was a sentimental element there which mucked up the economic aspect. Yet, all along, the advice has been completely the opposite to what it should have been. I should have sold the flat back in 2001 and I should have budgeted for far higher capital gains tax.
After having been sent three incorrect forms I completed my capital gains tax form in July 2008 and sent it in. I telephoned every month to find out what the bill was. However, as I have noted before the Manchester office was backlogged because of the stupid policy of the tax office to cut the deadlines for self-assessed tax submissions from 31st January to 31st October leading to overload. This time I found out that all the phone conversations I had were wrong. The officials had assumed I was talking about the assessment of my income not of the capital gains and it was only this time that I finally got through to a specialist, more than three months since I started trying. I thought I had filled the form in correctly. I followed it very carefully, but apparently I had left some relevant boxes empty and so it had been put on one side and forgotten. This is my fault and is a warning to anyone who has not done a particular form before, do not rely on the guidance booklet, take it to the tax office and ask for step-by-step guidance, unless, unlike me, you can afford an accountant. Anyway today they filled in the bits which I had thought irrelevant and told me my bill which is £16,800, just less than double what my worst fears were. I have to pay this by 31st January 2009. I would put the house up for sale, but the market is always slow this time of year in the UK especially with the credit crunch so it is unlikely I can raise the money in time. The house has lost £25,000 anyway. I am going to have to beg around family and the banks otherwise I will be a tax defaulter and someone will end up with the house anyway.
The lessons I have learnt from this ongoing process is, ignore promises you receive about property, it is far less of a safe investment than people think, especially in some local authority areas which are poor where they will squeeze as much as they can from you. Do not rent out a property especially if you do not have another one to live in, sell it as quickly as you can. When you sell it, hold back about 15% of the sale price to pay off the taxes, do not put this into another property. Do not trust the tax office to give you the correct assessment of your tax until they send through the final bill. Do not bother talking to the tax office on the telephone, go into the physical office and ask to speak to specialists, not the frontline tax staff who know very little. I know that I hit all of this at the worst time, but I would have been in little better state three years ago. It seems apparent that from the moment I arrived in Milton Keynes in 2001 I was locked on a bad path towards losing lots of money and my house. No guidance I received through that time ever reduced the impact, in fact it made it far worse. Rental housing with its fixed-term contracts and minimal rights for tenants makes it very hard to control your life anyway, but it is depressing to think that for the past 7 years I have been on this path, seemingly unable to take a step off it. It is astounding how much little decisions impact on me. If I had been faster and got one or another flat in a different borough, if I had picked on a different house when I left Milton Keynes, then a lot of this could have been avoided. The woman in my house says I should not feel blighted or destined to fail, but with my inability to shake off demand after demand for money how can I feel any other way?