Capital gains tax on second property

akuma

Hi all,

Apologies if this in the wrong section but I need some advice on Capital Gains Tax.

My father is selling his second home, bought in 1982 for around £12k. A buyer has made an offer for £110k.

I have checked HMRC's website but I found it rather confusing, he is a low income tax payer but was paying higher tax rate up until 5 years ago, not sure if this makes any difference.

There was some extension carried out on the property about 20 years ago, which cost around £5k.

I have worked it out as:

Cost = £12k
expenditure = £5k
Gain = £93k
Less Tax free allowance of £10k
= £83k

Capital Gains Tax 18%

18% of £83k = £14,940

Is this correct ?

gastroboy

Pretty much. Don't forget you can include the solicitors fee's for selling the property to reduce the size of the gain.

00ec25

akuma wrote: »

Is this correct ?

only in part, see below

gastroboy wrote: »

Pretty much.

the gain is correct but he has ignored the fact CGT is at 2 rates so its pretty much wrong actually

the net gain is correct but you have missed the fact you pay CGT at 18% up to the threshold of higher rate tax, and you pay CGT at 28% on the remainder. Its best explained using an example - lets say father has a pre income tax (ie gross) income of 20,000 pa and the gain of 83k, the tax due would be:

amount taxed at 18%
higher rate tax threshold 42, 475 (ie basic rate threshold 34,370 plus personal allowance 8,105) minus total income in year (20,000) leaves 22,475 of the 83k gain payable at the lower 18% CGT rate
CGT payable 22,475 x 18% = 4,045

amount taxed at 28%
total gain 83 - amount taxed at 18 % (22,475) = 60,525
60,525 @28% = 16,947

therefore, in this example, based on an income of 20K and a gain of 83k, the total CGT payable would be 16,947 + 4,045 = 20,992

so you need to redo the calcualtion to work out how much of the 18% band remains available after taking account of his total income becuase only that much will be at 18% and everything else will be at 28%

Fire_Fox

http://www.hmrc.gov.uk/cgt/