CGT on 2nd home sale

Kaymum_2

Not quite sure how the new system works for CGT. Difficult for me to explain what I'm unsure of so would appreciate it if someone could calculate the tax payable on each of the two scenarios and I should be able to work it out from there.

1. Husband and wife sell 2nd home at £210,000 after paying all fees etc. purchased home for £155,00. Husband earns 15,000 per annum, wife is a non earner.
2. As above but husband earns £30,000 per annum.

Would be very grateful for any help

p00hsticks

Have either of them ever lived in the property as their main residence ? and is the property in joint names ?

pingu_left_flipper

The capital gain on the sale of the property is the difference between cost (including fees) and proceds (after fees).
Using the figures provided the gain will be £55,000.
Various reliefs are available to reduce the capital gain on sale but it depends on the personal circumstances of the owners.
Each individual has a capital gains tax exemption of just over £10,000. If this has not already been used against other capital gains made in the year, then this would be available for offset against the capital gain.
The capital gain could of course be divided between the husband and wife if they own it in equal shares between them. This would make a gain of £27,500 each.
After this it becomes more complex. If the property was used as their main home then additional reliefs would be available. The quality of the occupation is at point here BUT if the couple "elected" for the property to be their main home within two years of purchase then this makes it academic. By quality of accommodation, if it is a 2 bedroom semi, and they live in it for a couple of days a month, and their other home is a Mansion in the country, then obviously the Mansion will be their main home for CGT purposes. This part is subjective and open to interpretation.

Really need to know the ownership history. Was it one of their homes before they were married? What do they do with the property when they do not occupy it?

The tax payable is dependent on the extent of their other income. If they have any of their available basic rate band then the capital gain up to this amount would be taxed at 18%. Any gain in excess of this would be taxed at 28%. As the spouse has no income, then the capital gain (after deduction of available annual CGT exemption) would be taxed at 18%. The unused annual income tax personal allowance cannot be offset against the capital gain.

Appreciate you do need to supply further details.

Kaymum_2

Hi again
Thank you for both responses. Just to clarify the 2nd home (in joint names) has never been our main residence and we understand that the sale will be 100% liable for capital gains tax on the full £55,000 gain.We just cannot quite grasp the method of calculating the tax payable.
Husband works part time and is currently on income of £15,000, but he may have the opportuninty of increasing his income (all PAYE) to £30,000.
Wife does not work.
If someone would be kind enough to work out the tax payable using both the £15,000 and £30,000 income we would be very grateful.
Many thanks

CLAPTON

wife no income at all
gain is 27,500
less cgt allowance of 10,100 is gain 17,400
less tax allowance 6,475 gain is 10,920 at 18% so tax is 1,966

OH income 15,000
gain is 27,500
less cgt allowance 10,100 so gain 17,400
20% on income up to 43,840 of which OH has use 15,000 so leaving 28,840 so all the gain is at 18% so tax is 17,400 x 18% i.e. 3,132

OH income of 30,000
gain 27,500
less 10,100 is 17,400
20% tax up to 43,840 but 30,000 already used so 18% on the first 13,840 i.e. 2,491
and 28% tax on the remainder i.e. 3,560 i.e. tax 996
so total tax 3,488

errors excepted on course

Kaymum_2

Thanks very much, just what we needed - it's the threshold, varying % rates, and use of personal tax allowances that was confusing us.
Really grateful for your reply-thanks again:j

Kaymum_2

Hi again
Sorry to be a pest but just one more quick question for CLAPTON if he/she doesn't mind.
Where does the figure of £43,840 come from? we were thinking it was somewhere in the region of £37,400 believing that to be the threshold for higher rate tax-just wish we were a little brighter!
Thanks in advance

BoGoF

You need to add your personal allowance (6475 for the current tax year) on to the basic rate band to get the figure where higher rate tax kicks in

Kaymum_2

Thank you BoGoF - the penny finally drops!

Elaine_Wilson

Can I just check the calculation for the wife.

Budget Note 20 says "the rate of CGT remains 18 per cent where total taxable gains and income are less than the upper limit of the income tax basic rate band."

I read that as meaning the whole of the gain would be taxed at 18% if the gain was below £43,840 and the taxpayer had no other income.

If that is right the tax payable would be £3,132.

Is the calculation explained elsewhere as none of the examples I've seen on HMRC's site cover this situation?

CLAPTON

Elaine_Wilson wrote: »

Can I just check the calculation for the wife.

Budget Note 20 says "the rate of CGT remains 18 per cent where total taxable gains and income are less than the upper limit of the income tax basic rate band."

I read that as meaning the whole of the gain would be taxed at 18% if the gain was below £43,840 and the taxpayer had no other income.

If that is right the tax payable would be £3,132.

Is the calculation explained elsewhere as none of the examples I've seen on HMRC's site cover this situation?

Indeed, you may well be correct.