Capital Gains Tax

nottingham13

Hi

Just to clarify, the capital gains tax rate is currently 18%.

But what was the rates in 2005/6?

Because we are currently in consultation with the tax office over a capital gains bill in that year. But there is a chance that there is no tax to pay at all because the capital gains was in my mothers name and she doesn't work.

So say if her income from savings etc was £2000, and the CGT bill was £3000(therefore total income £5000), considering the personal alloance for that year was £4895, would this mean that her tax would be 10% on £105?

Thanks

Cook_County

The personal allowance canot be offset. The annual CGT exemption in 2005/06 was £8,500.

I am confused however by your use of the words that it was "mothers name", because liability to CGT is based on beneficial ownership, no matter in which "name" the property is held. Was your mother the beneficial owner as well?

nottingham13

sorry, I havent been clear.

if the taxable gain was £3000, and her savings were £2000, then she would only pay 10% on £105?
thanks

silvercar

In that year, your mother would have had a CGT allowance of £8,500 if not used elsewhere.. So if her £3000 CGT liability is her only CGT liability, that would be less than her allowance then there is no CGT to pay. If you mean she had a CGT liability of £3000 after her allowance was utilised (ie total CGT bill was £11500) then the tax is at her marginal rate but she cannot utilise a personal allowance for any CGT due, so the fact that she has not used all her personal allowance is not relevent to your question.

nottingham13

sorry I am a little confused.

I did mean to say she had a CGT liability of £3000 after her allowance was utilised (ie total CGT bill was £11500)

But what do you mean about the "marginal rate"?

silvercar

From the revenue site:

"The amount chargeable to Capital Gains Tax (CGT) is added onto the top of income liable to income tax for individuals and is charged to CGT at these rates:

below the starting rate limit at 10 per cent
between the starting rate and basic rate limits at 20 per cent
and above the basic rate limit at 40 per cent "

For 2005/06 that would mean 10% on the first £2090 and 22% on £910 = £409.20.

There may also be penalty charges and interest for late payment as a gain in the financial year 2005-06 should have been included in the tax return due by 31 January 2007 and the tax paid by that date.

jimmo

nottingham 13
Somebody has to do this if you are going to get any benefit from posting your query so here goes.
If you are in “consultation with the tax office over a Capital Gain that arose in 2005/06” then somebody is almost certainly the subject of a formal Enquiry.
If any tax is unpaid then there will certainly be interest charged. If any tax is unpaid then there is a very significant risk that somebody has committed an offence and there will also be a penalty.
When taxmen and tax professionals talk and negotiate we use a form of English which makes no real sense to our “customers” and sometimes we struggle to help the “customers” understand.
Quite frankly, your posts, so far, make absolutely no sense to me and I rather think that others who have replied to you are guessing when they read what you say.
Just as an example you say “the capital gain was in my mother’s name”. Cook_County raised a query on that and you seem to have chosen not to answer.
The taxman in me interprets that as something suspicious that the actual person who made the Capital Gain was not your mother. I’m pretty sure that Cook_County is not a former taxman like me so you have 2 of us unhappy or uncomfortable with what you have said.
There could be a perfectly simple explanation but you are the only person who can provide it.
Where I’m really struggling is with the amount of the actual Capital Gain.
You have said “the CGT bill was £3,000.”
“The taxable gain was £3,000”.
They are hugely different statements and I am afraid I find it impossible to understand how you managed to jump from 1 to 2.
I just get the feeling that you are way out of your depth in a particularly complicated issue.
If you want help you really have to let go big time.
Tell us all the circumstances and I really think we can help but whilst people are having to guess on here there is more and more danger of us leading you down the wrong path.

nottingham13

Thanks for your reply,

First of all, CGT is new to me. I am trying to help out my mum who knows less than I do. And our solicitor has been completely useless.

I don't understand beneficial owner. Thats why i didn't reply. These are all new words to me.

She basicly owned a very small % of a 2nd property, and she is a non-earner and the the "taxable gain" was around £3000 we think (this is after the CGT allowance was used for that year). We had a solicitor to work this out for us.

So my simple question is, if her income from savings were £2000 ( i think it is less than this, but for arguments sake I just wanted to see if her income was over the personal allowance) and the taxable gain was £3000.

What Tax would she have to pay?

Is it, 10% on £105 (£5000 "minus" her personal allowance)? considering the personal allowance is £4895 for that year?

I understand there will be penalties and interest charges to pay. We would have paid it on time, but we were misled by our solicitor that no taxes were needed to be paid when the property was sold. So we are now trying to sort out the problem now. And because the solicitor has been completely useless, we are trying to understand the situation ourselves.

Thanks for your help.

nottingham13

Also, I did read this bit on the HMRC website and silvercar mentioned this, but I didnt understand it.

The amount chargeable to Capital Gains Tax (CGT) is added onto the top of income liable to income tax for individuals and is charged to CGT at these rates:

below the starting rate limit at 10 per cent
between the starting rate and basic rate limits at 20 per cent
and above the basic rate limit at 40 per cent "

Sorry I dont quite understand this. Does that mean if all taxable gains do not exceed your personal allowance then there is no tax to pay? (Provided you have no other income)

silvercar

Keeping it simple. I'm just answering your questions, if the questions you are asking are not the right ones you should be asking then I'm not trying to interpret what you may mean. This does mean that if you are not asking the right question then you are not getting the right answer.

It does appear that you are stabbing in the dark and in view of the fact that you seem to be subject of a tax enquiry it may be worth seeking the advice of a professional accountant, who could explain everything face to face or deal with the revenue on your behalf. On the other hand, if the tax involved is small, it may just be worth struggling yourself.

OK, back to your questions.

My post number #6 calculated the CGT based on your statement that £3000 was liable to CGT after using the £8500 CGT allowance. It came to £409.20.

nottingham13 wrote:

Also, I did read this bit on the HMRC website and silvercar mentioned this, but I didnt understand it.

The amount chargeable to Capital Gains Tax (CGT) is added onto the top of income liable to income tax for individuals and is charged to CGT at these rates:

below the starting rate limit at 10 per cent
between the starting rate and basic rate limits at 20 per cent
and above the basic rate limit at 40 per cent "

Sorry I dont quite understand this. Does that mean if all taxable gains do not exceed your personal allowance then there is no tax to pay? (Provided you have no other income)

Your last sentence is wrong. Your allowance for CGT is the £8500, there is no other personal allowance that you can use, the £4895 personal allowance for 2005-06 cannot be used for CGT. So the calculation is as described in the (italic) quote from the revenue site. The answer for £3000 above the £8500 allowance is £409.20, assuming no other income above the personal allowance.

Beneficial owner= the owner of the property is not the person named on the deeds ie the person named on the deeds is actually there in name only and another person is the one that really owns the property.

nottingham13 wrote:

We would have paid it on time, but we were misled by our solicitor that no taxes were needed to be paid when the property was sold. So we are now trying to sort out the problem now. And because the solicitor has been completely useless, we are trying to understand the situation ourselves.

If your solicitor took it upon himself to give you tax advice, then he would be liable for any costs incurred by yourself as a result of his mistakes. It may be that he was passing an opinion without giving professional advice.

Either you now understand broadly where you are in this issue or you should really go back to stage 1 and outline the whole setup. How you acquired the property with values and dates where appropriate. People can then do a tax calculation from a decent starting point.

nottingham13

Thank you ever so much for your advice.

But one query and that is with the amount of tax that is liable because we have a "Which guide to Tax" 2007/8, and it talks about the old CGT,

here is a paragraph from the book which I think is applicable because my mum is a non-earner.

"once you know the magnitude of the taxable gain, it is added to all your other income. The tax is then applied at your top rate as if it was income from saving interest. In theory this could be nothing. If your personal chargable top tax rate is 0% because you have little or no earnings, the the CGT wil be zero as well as long as you keep within your personal allowance. As with your income, the next slice (£2230) is charged at 10%."

This is what is making me confused, any help please?

Thanks for taking the time to help