Capital Gains Tax and Income Tax

gunnaknow

Hi, I'm hoping that someone more knowledgable than myself can help me get to the bottom of something. My income is under the income tax threshold of about 6K. How would this affect the amount of any capital gains tax due? I think that income is factored into how much capital gains tax is payable but I can't make much sense of the HM revenue literature below.

http://www.hmrc.gov.uk/rates/cgt.htm

My income is currently about 6K, from the interest on my savings, which is below the income tax threshold. If I were to buy a second home with that money I would obviously stop making an income. What would I be due to pay in capital gains tax in such a scenario, if let's say I made a 10K profit upon selling the property? What about if I had the money in the bank, making interest for six months of the year and therefore had an income of about 3K during the year of selling the property? I can't work it out, perhaps someone else can help me? Thanks

James

fengirl_2

Income Tax and CGT are two entirely separate taxes and one has no bearing on the other. You have an annual CGT exemption (£9600 this year) and the balance is taxed at 18% - it does not matter what your IT liability is.

silvercar

CGT looks at the gain you made on the property.

In simplest terms, selling price less purchase price less costs of sale and purchase less improvment costs = gain.

You have a personal CGT allowance of 9,600 in any one tax year and anything left over is taxed at 18%.

Income tax from earning and interest on savings does not impact on CGT liability.

gunnaknow

fengirl wrote: »

Income Tax and CGT are two entirely separate taxes and one has no bearing on the other. You have an annual CGT exemption (£9600 this year) and the balance is taxed at 18% - it does not matter what your IT liability is.

Hi, sorry, I didn't mean to say income tax in the title but just income. From the link in my first post, income seems to affect how much CGT is due. My question is how is my CGT exemption effected on my income? What would I be due to pay in the scenario that I put forward in my earlier post? Thanks.

James

gunnaknow

You must always work out your Income Tax liability before you work out your liability to Capital Gains Tax. The tax bands (see the table below) are first set against your income and what's left is set against your Capital Gains to work out your liability to Capital Gains Tax.

http://www.hmrc.gov.uk/rates/cgt.htm

johnllew

Please read what the previous posters have said - there is no longer a link between income and Capital Gains Tax. From the link you have provided, you can see that the link ceased in 2007/8:

2008-09
There is a single rate of Capital Gains Tax of 18 per cent for individuals, trustees and personal representatives.

2007-08
The rates of Capital Gains Tax for individuals for 2007-08 are 10 per cent, 20 per cent and 40 per cent depending on your income.

gunnaknow

Ok thanks. If I had bought and sold the property in 2007 how much CGT would have been due? If my only income in that year had been a 10K profit from the sale of the property, plus 3K from savings? Thanks.

johnllew

gunnaknow wrote: »

If I had bought and sold the property in 2007

Did you or are you just speculating?

gunnaknow

Just speculating mate.

cooljulessss

I have my main home but bought a flat with my husband in 2005,that needed totally gutting, it was to rent out but we have just finished it after having only weekends to do it and unexpected costs,etc. We have just put it up for sale instead of renting out (sick of the sight of it) and decided what money we make to put off our mortgage on our home, to reduce it. But just found out about CGT, and am gutted especially as we arent going to get what we wanted initially for it with house prices down. Anyway was wondering if i would get away paying it if i pay it off my own mortgage? Or could i put it in premium bonds? I dont work, but my husband does, the property is in joint names, any ideas? if not, any ideas to reduce it?

ceeforcat

Well you did not live in it (main residence relief) and I presume that it has never been let (letting relief) and so the calculation is fairly straightforward.

Sale price less costs of sale = A
Purchase price plus costs of purchase =B
Costs of improvements = C

Capital Gain is A - B - C

As it is jointly owned you can deduct £19200 (2 x £9600)

The remainder will be taxable at 18%