CGT Calculation ????

mr_nice_5

I am a after a very broad ballpark figure on what my CGT liabibilty is likely to be. Or the rough formula and I can go thorugh the figures. Here is my current situation.

1/ A property thats my main residence

2/ Another Buy To let property brought for 84K in August 1999, Rented ever since. Never lived in.

3/ August 04 Remortgage the first property to buy another Buy to let for 152K. Its been rented ever since. Never lived in.

Mortgages on property 2 and 3 are £110K, market value of the proerty is 160K
I am also married so I believe that I can use my wifes 8.5K, but I am not sure how these allowances work.

All I want is a rough fugure are we takking 2K, 10K, 20K ??????

Any help appreciated.

silvercar

1/ no CGT on principal private residence.

2/ bought for £84k August 1999, sale price = ?????

3/ bought for £152k August 2004, sale price ????

Is the £160k for property 3 or 2& 3 combined?

Mortgages are irrelevent for CGT purposes. You can claim them as expenses for tax relief on the rental you obtain but can't use them to reduce CGT.

You can use you wifes CGT allowance if the properties are jointly owned.

Fill in the gaps and I'll try a calculation.

mr_nice_5

1/ no CGT on principal private residence. - Agreed

2/ bought for £84k August 1999, sale price = 160K

3/ bought for £152k August 2004, sale price = 160K

Is the £160k for property 3 or 2& 3 combined? Each proeprty is now worth £160K

Mortgages are irrelevent for CGT purposes. You can claim them as expenses for tax relief on the rental you obtain but can't use them to reduce CGT.
Mortgage is roughly £700 month, Rental income is £700

You can use you wifes CGT allowance if the properties are jointly owned.
The propertys are jointly owned so can I use 8.5 + 8.5 = 17K over the last 3 years = 51K and take that amount of the amount owing then pay 40% tax on the outstanding balance. I am a higher rate tax payer

Fill in the gaps and I'll try a calculation.

Hope this helps, thanks for the assistance

Debt_Free_Chick

mr_nice wrote:

You can use you wifes CGT allowance if the properties are jointly owned.
The propertys are jointly owned so can I use 8.5 + 8.5 = 17K over the last 3 years = 51K and take that amount of the amount owing then pay 40% tax on the outstanding balance. I am a higher rate tax payer

You cannot carry forward unused CGT allowances. Whatever gains you make in this tax year, you each get an allowance of £8.5k. So ... if you sold property (2) the gain would be £76k which is a gain of £38k each, assuming the property is owned 50:50

Your share would be £38k-£8.5k which leaves £29.5k and tax (at 40%) of approximately £11.8k. If your wife is a basic rate tax payer, her tax would be 22% of her gain, so she would pay £6.49k.

silvercar

2/ bought for £84k August 1999, sale price = 160K

Owned for 7 years (make sure you complete after the exact date in August or it is only 6 years). 75% gain is chargable. Profit = 160k-84k=76k. You can also take off solicitor's fees (on purchase and sale). mortgage fees (but not nterest), estate agents fees. Say total fees = 5k. Net profit = 76-5=71k. 75% of 71k = £53.25k

3/ bought for £152k August 2004, sale price = 160K

Owned for 2 years. No tapering relief, all gain is chargable. Profit = 160k-152k=8k. You can also take off fees again (including stamp duty on puchase. Say total fees = 6k. Net profit = 8-6=2k.

So total chargable gain is about £55k. You can only use the CGT allowance for the year in question. so you have an allowance of 8.8 x 2 = 17.6k

Tax = (55-17.6) x 40% = 37.4 x 40% = £14,960.

I would have said sell one in this tax year and hold onto the other until the next tax year if the profits had been more equally spread.

If your wife isn't a higher rate tax payer, the tax on half of it will be at 10% or 20% depending on her tax situation.

Hope this helps

silvercar

Just to explain my calculations. Tapering relief reduces tax liability, for each complete year between 3 and 9 years, that you own the property. So if you own for less than 3 years there is no tapering relief; then it knocks 5% off for each complete year.

CGT allowance for the tax year 2006-07 is £8,800.

The amount chargeable to 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%,
between the starting rate and basic rate limits at 20%,
and above the basic rate limit at 40%.

If you had lived in the property, as your PPR, you would be entitled to 3 years relief and/ or letting relief.

mr_nice_5

Many thanks its been very helpful, cheers for taking the time to explain this to me :beer:

Debt_Free_Chick

silvercar wrote:

Just to explain my calculations. Tapering relief reduces tax liability

Thanks for that. I took the very lazy "simplistic" approach. And I forgot about the selling fees :doh:

Thanks