Is CGT allowance in addition to Income tax Allowance?

Mrs_justjohn

My partner and I are both self employed and we both submit SA tax forms. I think I have got to grips with the fact that we are 'allowed' to earn £7475 each this tax year (2011/2012) before paying tax.

However we have just sold our 'second home'. We bought it 3 years ago with a view to doing it up and selling it for profit. Although we have sold for a profit it was a lot smaller than we anticipated once you start adding up what you have spent on it!

So my question is are we EACH allowed the £10600 CGT annual relief in addition to our Annual Tax allowance of £7475 or are they somehow intertwined?

If we are allowed £21200 CGT relief between us then this will effectively mean that we won't have any CGT to pay (I assume we still have to declare it though?)

Thanks in advance

CLAPTON

well

yes cgt allowance is separate to income tax allowance

however if you bought the place to do up and sell the hMRC may consider this as trade and treat it as income rather than cgt

however, if you bought it as a holdiay home and used it as such then it would count as a capital gain

Mrs_justjohn

Aaaah right I see -- Thank you.

It is actually slightly more complicated as the property we bought was a derelict house. We bought it initially as we needed a 'storage facility' for our business stock. The lockups and workshops and garages etc in our area were going for about the same price as this derelict house. So the plan was to use the property for storage, and whilst using it for that purpose to do some work on it to make it habitable and then hopefully sell for a profit. Our business has now scaled down and we no longer need it for storage and therefore we put it on the market. We have made about £5K on it once you add up what we bought it for and what we spent on it and the fees involved in selling so I assume that no CGT tax is due?

Just to clarify the property was bought from personal funds and not 'through the business' so it woudn't be a business asset - would it?

John_Pierpoint

Does this property look like a private residence in the public records?
Has any expenditure/expenses gone through the business books?
There is a chance that HMRC might ask the Valuation Office Agency to take a look.
Is there anything to suggest that this was a business asset or a venture by way of trade?
[If you are not careful you could get into the situation of the planning department taking action against you on planning grounds at the same time as the rates department put in a bill for years of back business rates - true story, it happened to a neighbour of mine].
How much are you claiming to have spent renovating the property?
More than 21200 minus 5000 = 16,200? Ie why get into the hassle of trying to claim renovation costs of you don't need to, when your hobby is our architectural heritage.
There must be thousands of people who bought a second home in the boom years and are now unloading it because they need the money.

Mrs_justjohn

John_Pierpoint wrote: »

How much are you claiming to have spent renovating the property?
More than 21200 minus 5000 = 16,200? Ie why get into the hassle of trying to claim renovation costs of you don't need to, when your hobby is our architectural heritage.
There must be thousands of people who bought a second home in the boom years and are now unloading it because they need the money.

Thank you for your words of warning. I think we may escape the problems you mentioned with planning and rates etc...as the derelict house had (what appeared to be) some sort of workshop or possibly a shop attached to it (it was difficult to tell what with the whole property being is such a state...LOL). When we first bought it we were inundated with letters from the Scottish rates assessor as part of the property (at some stage) had been 'commercial'. They visited and declared it 'of no rateable value' due to it's condition. So I don't think there would be any come back due to us using it for storage for our business.

AS for what we would be declaring. We bought it for £75K and probably spent around 15K on it (just did the major work of roof, electrics, plumbing, damp treatment, woodworm treatment, replacing floorboards, plastering...etc). We have just accepted an offer on it of £95K. Although by the time you factor in all the legal / estate agent expenses for the original purchase and subsequent sale I doubt there will actually be a profit. The benefit of doing this for us is that we have had 'free' storage for the last few yeras (something we would otherwise have had to rent).

SUrely when we do our SA tax form we have to declare the figures I just stated but no CGT will be due?

John_Pierpoint

Yes each of you have disposed of an asset for more than four times the CGT nil rate band, so they will want to see your individual calculations even though these show there is no tax to pay.