Capital gains tax Query

Azeem_2

Hello all,

I have a series of questions regarding CGT.

If two brothers bought a flat, one of which is a first time buyer (FTB) and the second owns another property. The flat bought together is the principle residence for the FTB but not for the other person. The first time buyer is the main mortgage holder. The house was bought and sold in the same year.

1) Is this property liable for CGT?
2) What proportion is due for CGT?
3) Can the person who owns more then 1 property switch his main residence to the flat that is to be sold? then switch his main residence to the flat he still owns and sell that without incurring CGT?
4) How is CGT paid, what is the procedure?
5) What is the best way to avoid paying CGT (Legally, obviously) if possible?
6) If the profit on the sale was 20,000 how much would be payable? and 30,000 how much would be payable?

I know it's a lot of questions, appreciate the replies.

fengirl_2

The last 3 yrs of ownsership are exempt from CGT, so the brother who owns another property has no liability. There is, of course, no liability on the brother whose main residence is the flat.

Azeem_2

thanks for the quick reply

Is this likely to still be the case after the new budget is announced.

CLAPTON

the person who has never lived there, will have a cgt liability in principle

so if the profit is 20k then each will have a profit of 10k
the non PPR person has a cgt allowance of 10,100 so no cgt actaully payable
if the profit was 30k then the profit would be 15k each so the non PPR person will pay 18% on 4,900 = £882

if you tell me what the new budget will say then I'll try and work out the tax.

Azeem_2

Still confused as Fengirl suggested there is no CGT to pay because the property was bought and sold within three years. While Clapton suggests their is CGT to pay on 50% of the profits. So which is correct and what is the procedure for declaring CGT?

CLAPTON

Fengirl is an excellent source of tax information but the three year exemption is only availbale to the persons who have actually lived in the property.

fengirl_2

Sorry, a lapse of wassname.

Azeem_2

He did live in it during the week but was not his main residence for a few months. What proof is required to prove he lived here?

CLAPTON

Azeem wrote: »

He did live in it during the week but was not his main residence for a few months. What proof is required to prove he lived here?

it clearly wasn't his PPR so he wouldn't be able to claim PPR

00ec25

Azeem wrote: »

He did live in it during the week but was not his main residence for a few months. What proof is required to prove he lived here?

HMRC already knows he owns 2 properties via the Land Registry. Therefore if he tries to claim main residence on the second property his original property will become his second home and will forever more have a period when he did not live in it and will therefore be liable for CGT on it for that period

A switch must be notifed to HMRC within 2 years of you first owning (completeing on) the second property. Once the switch is notified it is perfectly legal to switch back at anytime but you are obviously building up a liability on whichever is not the PPR at the time.

think tax planning!

his original property is likely to have a larger gain when he sells becuase he has owned it longer than this joint propery which is planned to be sold after one year. Therefore if you try to switch the properties (using a CGT election) it will expose you to the risk of CGT on the sale of the original property at somepoint in the future based on a larger gain (18% of £100 gain = £0.18, 18% of 10,000... you get the idea)

Azeem_2

Thanks for all the info from the tax gurus. One last question, When calculating the profits can you take the cost of conveyancing fees, stamp duty and redecoration cost from the profits or is it sale price - purchase price.