Capital Gains tax avoidance

weekendwarrior

I own a house that I have rented out for the last 10 years or so, but just recently the landlord to one side of the property has decided to rent his house to drug addicts, one of which has been in prison 4 times recently. My tennants have two young children and do not want to live there anymore because of the new neighbours.

I have been using an accountant and have paid all relevent taxes on the income etc. I am now waiting for him to try and calculate approximately how much CGT I would be liable for if I was to sell. I'm not keen on renting as I have been stung in the past with legal action that cost me £9000 in legal fees.

The house was bought in 1999 for £18,000 cash and I spent about £12,000 renovating it, but I think most of this has been off set against income tax. I then mortgaged the property to fund another property purchase and so I owe £13,000 on the mortgage. The house is now valued at £85,000 does anyone have any idea of how much CGT I would be liable for?

I work full time, but my employers are offering some people three months off work without pay and so I am contemplating doing this or else I am basically just going to be working for nothing.

Any suggestions are most welcome.

Thanks in advance

fengirl_2

Have you ever lived in the house and if so, for how long?

terryw

I am replying in haste, but I am sure someone else will be along shortly with essential detail. Basically, you pay on the difference between the cost price and the selling price (both adjusted for purchase and selling expenses) Cost of capital improvements can also be deducted. Indexation has been done away with, and the gain is taxed at a flat rate (18 per cent from memory). Mortgages and borrowings do not come into it.
It helps if you move into the property for a while. Bung capital gains tax into google and you will be directed to the HMRC site which gives the CG rules.

bw

terryw
(in haste)

weekendwarrior

Thanks for the replies so far.

I never lived in the house at all.

jiggy2

weekendwarrior wrote: »

The house was bought in 1999 for £18,000 cash and I spent about £12,000 renovating it, but I think most of this has been off set against income tax. I then mortgaged the property to fund another property purchase and so I owe £13,000 on the mortgage. The house is now valued at £85,000 does anyone have any idea of how much CGT I would be liable for?



Any suggestions are most welcome.

Thanks in advance

Disposal proceeds (if you can sell it at that ) £85,000
Cost £18,000
Renovations (you mention they have been claimed against income tax therefore as revenue expenses - rather than capital so wouldn't affect the capital gains comp)

Gain £67,000
Annual exemption £9,600 (used 2008/09 AE - will be slightly higherfor 2009/10)

Chargeable gain £57,400
CGT @ 18% - £ 10,332

Above calc has ignored any selling and buying legal costs etc that details haven't been provided for- so the CGT will be a bit less.

HTH

weekendwarrior

Thanks for all the replies.

I checked the HMRC site and it was most useful, I did google capital gains tax before, but I'm sure the page I landed on said that you add the capital gain to your salary for the year and then your tax is worked out on that!

For the sake of paying 18% I think I will dispose of it and then there is no hassle. Being a landlord just is not any fun at all!

Who knows I might even sell up and emigrate now!

Thanks again :T

terryw

This used to be the case but the new rate is flat 18 per cent. It is well worthwhile moving into the property so that it becomes your principal private residence for a while - have a look at this link http://www.lawpack.co.uk/Knowledge/Property/BuyingAndSelling/article885.as

terryw

jiggy2

terryw wrote: »

This used to be the case but the new rate is flat 18 per cent. It is well worthwhile moving into the property so that it becomes your principal private residence for a while - have a look at this link http://www.lawpack.co.uk/Knowledge/Property/BuyingAndSelling/article885.as

terryw

that would work if he has lived in the house before letting it out...it would let him get 3 more years of PPR relief...and then could also get letting relief....

OP - by making it your PPR (by staying in it for say 6 months) you could get some of the gain exempted from capital gains tax.

Jig

terryw

jiggy2 wrote: »

that would work if he has lived in the house before letting it out...it would let him get 3 more years of PPR relief...and then could also get letting relief....

OP - by making it your PPR (by staying in it for say 6 months) you could get some of the gain exempted from capital gains tax.

Jig

Please read my two posts above and the link that I have provided. I have only suggested exactly the same as you in your last sentence!

trevormax

are you married? you can split the gain 50/50 with your psrtner and utilise both of your annual exemption amounts.

weekendwarrior

Thanks again for the replies!

I'm getting a copy of the book that terryw has posted a link to, they have some great books on tax on that site :T

The annoying thing is that I was supposed to live in the house when I bought it, but I caught my girlfriend of the time cheating on me and so I let her stay in it for as long as she paid the mortgage (which was not long) then I ended up renting it out.

I'm not married, unfortunately

I guess that 18% tax on the gain is not as bad as I first thought.

A few days back I got my P60 and when I saw how much tax and Ni I paid over the year and then when you look around at hoodies, chavs, Asylum seekers, NHS tourists etc. etc. It just makes me want to emigrate :mad: