Income and CGT query

vigman · 10 December 2017 at 2:16PM

Hi

My wife earns c £2000 PAYE since retiring. I took the married allowance as my pension is taxable.

She has just been told she will be liable for CGT on the difference in IHT valuation and the sale price of a property

I know there is the personal tax allowance and a CGT allowance.

I'm trying to get my head round whether these allowances can be combined before any tax is paid?

If the CGT owed was £11,400 would she be liable to 18% of the £100 over the £11,300 allowance even if she had only had income of £2000 in that year.

I think the actual amount CGT will be based on is £40,000

Any examples greatly welcomed please

TIA

Vigman

Linton · 10 December 2017 at 2:25PM

The CGT allowance and Income Tax allowance are completely separate. You cant move spare allowance from one to the other.

vigman · 10 December 2017 at 2:38PM

Ive just read somewhere that married couples can claim the £11,300 CGT allowance each if one of them makes a capital gain?

Just found this example of a single non taxpayer earning £5k with £100,000 CG when the CGT allowance was £11,100

"The easiest way to explain is that you will pay 18% on everything between the amount that you earned from an income perspective and the upper end of the basic rate income tax band of £31,785.

So. If you only earn £5,000 a year, you’ll pay £26,785 at 18%, then the remainder of the taxable amount (£88,900 – £26,785) of £62,115 at 28%. Therefore, your capital gains tax bill would be £22,214 in the example where your income is £5,000 a year."

Vigman

vigman · 10 December 2017 at 3:05PM

I have just found the CGT calculator on the Gov.uk website although it only allows for the deduction of one person's CGT allowance?

Thanks

Vigman

00ec25 · 10 December 2017 at 3:13PM

vigman wrote: »

Ive just read somewhere that married couples can claim the £11,300 CGT allowance each if one of them makes a capital gain?

instead of drip feeding info and confusing yourself by only partial reading of who knows what sources, please answer:

who owned the sold property: your wife as sole owner or both of you as co-owners? (It appears to have been inherited, so I assume by your wife only?)

if co-owners what format did that take: joint tenancy or tenancy in common?

if tenancy in common, what were your respective shares?

the 100k example calculation you list explains how much tax is payable at 18% and 28% but uses the tax thresholds applicable to the 16/17 tax year. What tax year was the property sold in?

the CGT allowance (£11,300 17/18 @ rate) is PER (beneficial interest) OWNER hence the calculator quite rightly works on the basis the tax is due from the taxpaying owner based on their share of the gain

vigman · 10 December 2017 at 3:20PM

00ec25 wrote: »

instread of drip feeding info and confusion yourself by only partial reading of who knows what sources please answer:

who owned the sold property: your wife as sole owner or both of you as co-owners?

if co-owners what format did that take: joint tenancy or tenancy in common?

if tenancy in common, what were your respective shares?

the 100k example calculation you list explains how much tax is payable at 18% and 28% but uses the tax thresholds applicable to the 16/17 tax year. What tax year was the property sold in?

the CGT allowance (£11,300 17/18 @ rate) is PER (beneficial interest) OWNER

Thanks. The property was owned by my wife and her sister 50/50. The property was sold a few months ago. CGT arose because there was a difference between the IHT valuation and the actual sale price. I realise that only her allowance can be deducted on her portion

Vigman

00ec25 · 10 December 2017 at 4:28PM

vigman wrote: »

Thanks. The property was owned by my wife and her sister 50/50. The property was sold a few months ago. CGT arose because there was a difference between the IHT valuation and the actual sale price. I realise that only her allowance can be deducted on her portion

Vigman

so sold in 17/18 tax year, therefore, too late to do any tax planning actions now.

your wife's share will be 50% of the gain between selling price (less selling costs) and the IHT/probate valuation.

Unless the estate of the deceased actually paid IHT, the valuation has not yet been "ascertained" ie accepted by HMRC and they may overrule your wife's figure when she submits her tax calculation

the only relief to which your wife is entitled will be (one) £11,300 CGT "annual exempt amount" (the so called CGT personal allowance).

your wife will then pay tax at 18% and/or 28% as per the mechanics of the example you've already found

you do not feature in any of the above at all, the tax liability is solely on your wife

vigman · 10 December 2017 at 5:08PM

Many thanks 00ec25. The whole thing is a mess as there were multiple properties and valuations and a large sum c £500,000 has already been paid towards IHT although an overall total value of the estate has not been agreed. No settlement from the estate has therefore been made.

However the sister has had a specific notification on the one property in question that CGT is due on the difference between valuation and sale and has let us know this will be due on my wife's part.

Vigman

00ec25 · 10 December 2017 at 10:22PM

vigman wrote: »

Many thanks 00ec25. The whole thing is a mess as there were multiple properties and valuations and a large sum c £500,000 has already been paid towards IHT although an overall total value of the estate has not been agreed. No settlement from the estate has therefore been made.

However the sister has had a specific notification on the one property in question that CGT is due on the difference between valuation and sale and has let us know this will be due on my wife's part.

Vigman

let us hope the estate is being administered by professionals then if the IHT paid so far is £0.5M. Wonder why this one property has triggered CGT if there are others in the estate that have not?

Tom99 · 10 December 2017 at 11:52PM

[FONT=Verdana, sans-serif]Was the beneficial interest in the property transferred to your wife/sister before the sale or was the property sold by the estate? If it was not transferred then normally the sale will be treated as being by the estate and the estate only has one total annual allowance of £11,300 and also pays CGT at the higher rate of 28%.[/FONT]

vigman · 11 December 2017 at 2:22PM

Tom99 wrote: »

[FONT=Verdana, sans-serif]Was the beneficial interest in the property transferred to your wife/sister before the sale or was the property sold by the estate? If it was not transferred then normally the sale will be treated as being by the estate and the estate only has one total annual allowance of £11,300 and also pays CGT at the higher rate of 28%.[/FONT]

The property was willed to my wife and sister and sold by the estate. I don't believe it was transferred to them before the sale as the land reg was still in the deceased's name as far as I can make out.

The most confusing thing is that the money received for the sale of the property has actually all gone to pay IHT against the total estate.

So my wife is paying CGT on the difference between the valuation and sale price of the property although she is actually not getting a half of the sale proceeds?!

TIA

Vigman

Income and CGT query

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