Capital Gains Tax

tilleym

Good Morning,

I have a question relating to CGT, I hope some nice person can answer for me please.

Is outstanding mortgage taken into account when working out CGT liability ? For example, House purchased for £85000, remortgaged bringing total owed up to £110000, House is now worth around £120000, so would the capital gain be, 120000 - £85000 or £120000 - £110000, house is not rented out, elderly parents live there, but we own, just thinking ahead to the future really, and what plans we need to put in place, should we end up with a tax bill.

Elaine_Wilson

Mortgages are irrelevant to the calculation of the gain. So my first answer would be that the gain is £120,000 - £85,000.

But why did you remortgage? What was the £25,000 used for?

If the money was used for capital improvements to the property then the cost of those improvements can be added to the base cost of £85,000 to reduce the gain.

CLAPTON

mortgage is irrelevant

cgt is based on the gain i.e. difference between buying and selling price less buying/selling costs
so in your example 120,000 - 85,000 = 35,000 less costs

lets say costs are 4,000 so gain would then be 31,000

if it were jointly owned then each person has a gain of 15,500
and you each have an allowance of 10,600
so taxable again would be 4,900 at between 18% and 28% depending upon your income i.e. between £882 and £1,372 each

tilleym

Thank you for your answers, you have confirmed my understanding,

Elaine - the extra money wasn't used for improvements to the property, parents needed help financially as they had got to their 60s and still had a huge mortgage outstanding, we needed a larger house for growing family so purchased theirs, and they moved into ours.

tilleym

Clapton - I dont currently pay tax as only work part time,(Lunches, term time ) would that make any difference, if even with the gain I remained under my personal allowance ?

thenudeone

The CGT allowance is completely separate from any personal allowance for income tax, so the fact that you don't pay income tax is irrelevant.

CLAPTON

tilleym wrote: »

Clapton - I dont currently pay tax as only work part time,(Lunches, term time ) would that make any difference, if even with the gain I remained under my personal allowance ?

I'm afraid the answer is that you would pay cgt at 18%.