cgt and taper relief

horseman

I am confused by how much I need to pay in taxes at this moment forgetting rental income and expenses.

I bought a property in 1987 for £54000 and sold it March 2008 for £125000 making a profit of £71000,by the way I did not live in it.

Thanks,

Horseman

fermi

Is that Capital Gains Tax etc......?

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horseman

yes thats right

medders2604

Have you ever lived in the property? If so for how long? And if you did why did you move out work etc? Did you rent it out?

There are a number of different ways you can reduce your CGT liability and the answers to these questions will help work out by how much it can be reduced.
If I'm still around when you post the answers I'll be able to give you a good idea of how much you will have to pay. (Just done my tax exams and still have all the material, mind you I don't get results till next week so you will need to get figures checked ;-))

horseman

no didnt live in it but rented it out

medders2604

One other question sorry to be a pain but means can be more precise for you.

What month did you buy the property in? (you can also get indexation allowance for the period from purchase until 31st March 1998)

horseman

may 1987 thanks for your help

trevormax

There is no Taper relief any more, its just a flat rate of 18% in this situation.

A simple calculation would be (I'm not an expert in CGT so this does not cover everything but it does cover the basics):

You take the proceeds of the sale,

deduct your annual allowance (or allowances if the property is in joint names)

deduct the amount you paid for the property when purchased if after 1982,

deduct any costs like legal fees,

deduct costs of improving the property like installing a new and better bathroom for example

The amount left is chargeable at 18%

If you are making a large gain, it might be advisable to seek out a tax advisor as he/she may be able to save you a lot of tax. Some of them do a free first consultation to figure out what they might be able to save.

medders2604

Right here you go:
Acquisition cost: £54,000
Indexation allowance on acquisition cost: £54,000 x 0.596 = £32,184
(add in your sale costs here)
Total Deductions: £86,184

Disposal proceeds: £125,000
minus
Deductions: £86,184
Net Gain : £38,816

Taper relief menas that as you owned the property for more than 10 years only 60% of the gain is chargeable so 38,816 x 0.6= £23,289.60

£23,289.60 is chargeable
minus annual exemption of £9,200
£14,089.60

£14,089.60 is the amount you will pay tax on (assuming you don't have any losses you can offset). The rate depend on what your income was for last year and could be a combination of 10%, 20% and 40% depending on what your income was. Let me know if you want me to work that bit out for you.
Sorry about the long winded explanation but wanted to go through every bit so you can see what I have done and where you need to add in your expenses.

medders2604

Trevormax, the removal of taper and the flat rate only came into effect from April this year. 2007-2008 tax year still gets taper and indexation with the gain payable at the OP's tax rate.
:-)

medders2604

Just worked it out you did the right thing selling before the changes in April by doing that you will pay a max of £5635ish under the new CGT calculations you would pay £11,000ish.
Who said that the new 18% rule was better and that people would save money??? Yes old rules are more complicated and more working out but look at the tax saving by selling in March rather than April! Good on you!