CGT advice please

realblonde59

Hi there.
My Partner is selling his house to pay debts. If it sells at the asking price he will have made £90,000.My question is: He is a basic rate tax payer earning less than £40k pa. Will the gain in this tax year of £90k mean that he will pay 28% CGT because his taxable income for just this year is over £40k? Or will he pay 18% CGT because he is usually a basic rate tax payer? We are trying to estimate how much he will be left with to pay debts. He bought it in 1987 and moved abroad in 1989, letting it out until July this year. He came back to the UK in 1999 and lived in another property that he bought with his now ex-wife. He has been renting for the past 5 years following his divorce.He kept his current house in the settlement,He will be devastated if he has to pay 28% as he will not cover all his debts.
Thanks in advance for anyone who can help.

dan.date66

Well it depends on the amount of the "gain". you are right in assuming that it is added to his income in the year of sale to work out the CGT rate applicable, and in his case, a £90k gain would mean most of the gain being taxed at 28%.

However, the gain in his case would not be 90k because of all the reliefs that can be set against it. His period of residence will help reduce the gain, but i would seek proper help from an accountant to work out the gain for him - it is complicated by his absences abroad, so don't try it yourself! But the gain should be a lot less than you think it is.

realblonde59

Thanks for that. I think he is just trying to approximate how much he will be left with to pay his debts. I have tried understanding the letting relief on HMRC site and have found it mind boggling. My partner does have a tax accountant but he charges every time he talks to him I am sure. Can you help with an estimate? what % or fraction of the £90k can be letting relief if he has lived in it for 2 years when he bought it then it has been let out for the last 24 years, ending last July when he moved back in. I would just like to put his mind at ease. It was bought for £35k and is hoping to sell for £135k. The accountant said to take off £10600 and he will then be left with £89400 liable to CGT.
Hope you can help

00ec25

this is an approximate calculation

ownership period 1987 - 2013 = 26 years
lived in it for 2 years as his main home (1987 - 89)

A) Gain 90,000

Private Residence Relief
total 5 years (2 + last 3 years rule) so 5/26 x 90,000 = 17,307

C) letting relief. Lower of :
i) PRR £17,307
ii) gain in let period 21/26 x90,000 = £72,692
iii) £40,000 cap

D) personal allowance £10,600

Net taxable gain A-B-C-D
90 - 17.307-17.307-10.6 = £44,786

Tax payable (worst case scenario all at 28%) 44,786 x28% = 12,540

Cash available to pay debts 90,000 - 12,540 = 77,460

note this is an APROXIMATE calculation

realblonde59

Hi there. Thanks so much for the help. My partner says the gain is 100k he just took 10k off for the allowance. Using your reasoning I can estimate it to 100k-19, 230-19, 230-10, 600 x 28%= 14,263. Therefore 100k -14, 263= 85, 737 + original 35k = 120, 737.

Does this look correct to you? An estimate of course.

kimdegsidash

Your estimated calculation looks ok. Have you deducted capital expenditure on the house over the years though?

Most people buy a house then spend several thousand doing it up. As long as those expenses have never been claimed against letting income then you can deducted these also from the selling price before arriving at the gain on which tax is due.

Also, cost of sale and cost of purchase are deductible, eg legal fees, stamp duty and search fees.

Hope that helps you get the gain down. If only you had transferred the property into joint names before selling!

realblonde59

He has not improved the property at all in 26 years! Are all the selling fees deductable? They are nearly £5k!

nomunnofun

realblonde59 wrote: »

He has not improved the property at all in 26 years! Are all the selling fees deductable? They are nearly £5k!

Absolutely!

CLAPTON

kimdegsidash wrote: »

Hope that helps you get the gain down. If only you had transferred the property into joint names before selling!

transferring into joint names would probably make cgt higher

as the OH would not be eligible for PPR or lettting relief on their half

realblonde59

Thanks so so much. He feels a lot better now.

shining

I am trying so hard to understand and work this out on my own, but am failing miserably. Please can someone help me.

I have owned my flat for 13years. I have lived in it for 5years only and rented it out for the remaining 8years.

It was purchased for 64.000 and I am hoping to sell it for 150.000
A gain of 86.000.

I am retired now and hoping to move to the coast, finger crossed