avoiding capital gains tax on 2nd house

System

Hi, I also need a bit of advice on this subject..I bought a flat for £24k 12 years ago in a run down area, i have rented it out and never lived there.
My tennent has now left so i have decided to put it on the market ( They are going between 55k & 59k )
Since buying the flat i have married , the house we are living in is in my wifes name.
Can anybody tell me if i would be liable to pay any tax if the house is sold ?
Thanks.... ???

lisyloo

Yes - because it's not your main residence then you will be liable to pay Capital Gains TAX (CGT) but there are a few things to bear in mind.

1) I belive there is some taper relief. The longer you have the property, the lower the tax. This is worth investigating.

2) You both have a CGT allowance of £8200. If you put the house in joint names (some legal cost involved) then you can double your allowance.

3) If your wife pays a lower tax rate than you, then it might be worth putting the house in her name (it's not possible to say which way would be best, without knowing your tax rates etc.).

Tony-Anfield

As a normal rate taxpayer does any body have any idea roughley how much they would be looking for.
Also is it up to me to inform the inland revenue of my situation ?

lisyloo

As a normal rate taxpayer does any body have any idea roughley how much they would be looking for.
Also is it up to me to inform the inland revenue of my situation ?

Basic rate is 22%. Although it's possible it could push you into 40% tax.

Yes, it is your responsibility to inform the IR.

MJSW

Capital Gains within the basic rate band are chargeable at only 20% not 22%.

If the property was bought around 12 years ago, indexation allowance increases the base cost to around £29k. Assuming proceeds of £57k, the gain would therefore be around £28k. Taper relief of 25% would be due for a disposal in the current tax year, leaving a gain of £21k. After your annual exemption, the amount on which CGT would be charged is therefore about £13k.

Tony-Anfield

Thanks for the information...So do i need to contact the inland revenue or will they get in touch with me to tell me how much i owe them ?

lisyloo

I am pretty sure you need to tell them.
They won't know you owe them money (they don't follow ever individual transaction).
I believe the responsibility is down to the individual.

Tony-Anfield

mmmmm.....so i could just plead ignorance... :-X :-X

lisyloo

No ignorance is not a defence.

It is the individuals responsibillity to pay the money owed.
If you don't then it's an offence - tax evasion - I think it's called.

It's treated quite seriously and if you're found out then your house will be searched from top to bottom and the rubber gloves will come out - most unpleasant I'm lead to believe.

johnllew

mmmmm.....so i could just plead ignorance... :-X :-X

If you haven't been issued with a tax return, you are obliged to notify the IR by the 5th October after the tax year in which the gain arose. If you don't, penalties can be severe.

It isn't worth it, especially if you follow the advice above - particularly putting ther property into joint names with your wife just prior to sale. That will mean another £8200 exemption, leaving just £5000 chargeable - perhaps as little as £1000 CGT + some legals on the transfer.