CGT on 2nd home sale

twig1_2

The 6475 allowance is against Income tax so cannot be deducted off the capital gain as well so tax for wife is 17400 @ 18% and can only be used to establish whether the basic or higher rate cgt rate is used for the husbands gain so with second salary the tax rate would be the higher rate .



QUOTE=CLAPTON;35260751]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[/QUOTE]

JamesU

If the house is owned outright (no mortgage) should be easy to transfer from husband/wife joint to wife only by change of title deed for a few pounds at the Land Registry? No CGT issues to consider with transfer between husband and wife. NOT TAX EFFICENT! CALCULATION CORRECTED USING TWIG1 CALCULATOR AS BELOW!

55,000 - 10,100 = 44,900 gain
Wife has no income so:

37400 at 18% = 6732
44,900-37400 = 7500 at 28% = 2100

Total CGT to pay = £8832

Previous calculations using both CGT allowances better:

15K husband, 27500 gain + 0K wife 27500 gain = 3132 +3132 = £6264

30K husband, 27500 gain + 0K wife 27500 gain = 4132 + 3132 = £7264


Thanks for the calculator link Twig1, very useful!
http://www.invidion.co.uk/cgt/index..../css/tools.css


JamesU

twig1_2

http://www.invidion.co.uk/cgt/index.php?linker=http://www.invidion.co.uk/css/tools.css

Here is a calculator for all you budding CGT experts though I usually use the directgov.co.uk site

JamesU wrote: »

If the house is owned outright (no mortgage) should be easy to transfer from husband/wife joint to wife only by change of title deed for a few pounds at the Land Registry? No CGT issues to consider with transfer between husband and wife.

Then for wife:

55,000 - 10,100 = 44,900 gain

Wife has no income so:

44,900 - 43,840 = 1,060 at 28% = £287 CGT to pay


Just a thought, every little helps...

(note: maybe use 6475 + 37400 = 43,875 ??)


JamesU

Kaymum_2

Thanks for everyone's input, nice of you all to take the time to post a response. However, unfortunately we are now confused again but thanks again anyway.

twig1_2

The figures are
Wife with no income but half of the gain £3132
Husband with £15000 income and half of the gain £3132
so together £6264
Husband with income of £30000 and half of gain £4132
so together with this option £7264

All gain to wife £8832

Kaymum wrote: »

Thanks for everyone's input, nice of you all to take the time to post a response. However, unfortunately we are now confused again but thanks again anyway.

JamesU

Kaymum wrote: »

Thanks for everyone's input, nice of you all to take the time to post a response. However, unfortunately we are now confused again but thanks again anyway.

Kaymum, I missed a line, ie tax at 18% and my initial stuff is wrong but Twig's stuff is correct and I have corrected my previous post as in thread above...Twig's calculator is much easier....and it shows importance of using both husband and wife's CGT allowances of 10,100 each.

All you have to do is plug in numbers like so:

(i) pretend aquisition cost = 100,000 then disposal cost is 127500 (giving each persons 27,500 gain)

(ii) plug in a salary (e,g. husband = 15,000 or wife is 0)

(iii) press calculate

(iv) see the breakdown

(v) repeat for second person


Try it out to make sure you can do it! Very useful.
http://www.invidion.co.uk/cgt/index.php?linker=http://www.invidion.co.uk/css/tools.css


Great stuff, thanks again Twig1


JamesU

JamesU

jimmo wrote: »

From my personal interpretation of what you have posted transferring the property into the sole name of the wife could well be a financial disaster but it is your money that is at stake, not mine.
In your particular circumstances I find it hard to believe that paying for professional advice would be cost effective but you have to make your own decisions.

Jimmo, the transfer to sole name was my idea alone, was wrong, and then corrected as highlighted in the thread above.

JamesU

JamesU

jimmo wrote: »

3) If the husband is earning a straight £30,000 a year then, for Income Tax purposes he will be able to deduct the Income Tax Personal Allowance of £6,475 leaving £23,525 chargeable to Income Tax. That uses up £23,525 of his basic rate band of £37,400. That also means that he has (37,400 - 23,525) £13,875 of his basic rate band available to be used against any Capital Gains Tax liability.
As his taxable Capital Gain is £17,400 his Capital Gains Tax bill will be:
£13,875 at basic rate 18% = £2497.50 plus
£3,525 at higher rate 28% = £987.00.
Total £3,484.50.

Note: if you use the calculator for £17,400 gain (after CGT allowance), £30K income:

£7,400 at basic rate 18% = £1332.00
£10,000 at higher rate 28% = £2800.00
Total £4,132.00

So there is an inconsistency between Clapton/Jimmo figures versus calculator/Twig1/JamesU figures.

Difference in this calculation, I think the income allowance of £6,745 should not be deducted for CGT purposes, Twig1 mentioned this too, and the calculator is doing it this way (i.e. 37,400 - 30,000 = 7,400 at 18%, then 10,000 at 28%, and not = £13,875 at 18%)? Hence the higher CGT of £4132.00.

This error is not evident at husband £15K income calculation where everything stays below 37,400 and is taxed at 18% anyway (15,000 + 17,400 = £32,400). Hence why CGT for husband at £15K income and wife at £0K income are the same at 17400 @ 18% = £3,132.

What do you think? These figures are correct?

Wife (0K) and husband (15K), CGT £3,132 each
Wife (0K) and husband (30K), CGT £3,132 (wife) and £4,132 (husband)

Kaymum, wish I had not posted! So much for the new rules and simplifying CGT!


JamesU

twig1_2

You are right thay haven't simplified it.
The thing to remember is that the 6745 is the tax free allowance on earned income and the £10100 is the equivalent for Chargeable gains income .You can not use the Income tax allowance to offset against the chargeable gain one .
It certainly aims to confuse using the earned income bands to determine which rate of cgt is used.
It certainly keeps accountants in jobs though.

JamesU wrote: »

Note: if you use the calculator for £17,400 gain (after CGT allowance), £30K income:

£7,400 at basic rate 18% = £1332.00
£10,000 at higher rate 28% = £2800.00
Total £4,132.00

So there is an inconsistency between Clapton/Jimmo figures versus calculator/Twig1/JamesU figures.

Difference in this calculation, I think the income allowance of £6,745 should not be deducted for CGT purposes, Twig1 mentioned this too, and the calculator is doing it this way (i.e. 37,400 - 30,000 = 7,400 at 18%, then 10,000 at 28%, and not = £13,875 at 18%)? Hence the higher CGT of £4132.00.

This error is not evident at husband £15K income calculation where everything stays below 37,400 and is taxed at 18% anyway (15,000 + 17,400 = £32,400). Hence why CGT for husband at £15K income and wife at £0K income are the same at 17400 @ 18% = £3,132.

What do you think? These figures are correct?

Wife (0K) and husband (15K), CGT £3,132 each
Wife (0K) and husband (30K), CGT £3,132 (wife) and £4,132 (husband)

Kaymum, wish I had not posted! So much for the new rules and simplifying CGT!


JamesU

JamesU

jimmo wrote: »

When we look at the husband with earnings of £30,000 my logic is that he is perfectly entitled to deduct the personal allowance of £6475 in determining his Income Tax liability and, hence the amount of the basic rate band used for Income Tax.

I rather hope that this backs up my version.
http://www.hmrc.gov.uk/rates/cgt.htm#4

Yes this does back up your calculations and it looks like I am wrong yet again. If one follows point 1 of the HMRC notes, you take away the 6745 before entering into the CGT calculation and then arrive at your breakdown.

The calculator is not working properly. If you input 30,000 and an income allowance of 6745 (which is set as default) you arrive at the figures calculated by myself and Twig1. If you input 23525 (30000-6475) and a personal allowance of zero the calculator provides your CGT breakdown as in thread above. So presumably the calculator is wrong and is only as good as the person inputting the data. Alternatively the calculator is correct (see next paragraph) and the notes are wrong.

As in their own notes, provided HMRC is indeed happy with the fact they are suggesting to use both an income allowance and capital gain allowance to calculate a CGT gain, then for sure your calculation is correct. But I doubt this was not their intention (Twig1's point and the way the calculator works) despite the fact they have written this. May be an ambiguity at present given the brevity with which the notes were produced.

And so much for "simplifying things" with this hybrid income/CGT system. (CGT Gain - CGT allowance) x X% seems a lot easier to me

And I should definitely stop calculating CGT in future, and leave it to the accountants


JamesU