What should I do?

jaggy23

Hi, I am in the process of selling a number of rented flats. Looks like I willhave to pay 40% income tax on this sale. From what I believe, I do't have to pay back this tax for another 18 months? If this is the case, would it be sensible to put the money, which "Mr. Brown" wants, into some sort of savings account till the deadline comes up, thereby gaining some interest on it before he takes it? Or, should I just give it to him now? Any advice would be appreciated.
Thanks

Moncs_2

My dad sold his house for £150k, money went straight into his current account, no tax was ever paid on it. Do you need to pay tax??

jaggy23

Yes I do have to pay tax because the sale is from unearned income. Your dad probably wouldnt have to cause he was living in the house. I think theres a difference between the two.

Moncs_2

jaggy23 wrote: »

Yes I do have to pay tax because the sale is from unearned income. Your dad probably wouldnt have to cause he was living in the house. I think theres a difference between the two.

ah I see, Thanks for that

DocProc

The rent from your flats was income and as such is chargeable to Income Tax.

If you make a profit (ie, a capital gain) from the sale of your flats then the gain would be liable to Capital Gains Tax.

You've got the right idea about not wanting to pay tax until you 'absolutely just have to', since between now and then you can do things with the money and get further income from it.

I think you would benefit from having a chat with a good accountant to see if you can roll this gain over into something else in some way, thereby deferring the payment of any tax to some time in the future.

jaggy23

Many thanks for your advice. Appreciated.

gingercordial

Hi jaggy23

As DocProc says you will be paying Capital Gains Tax on the gains you make (ie the sales price minus how much you paid, and also deducting purchase costs and sales costs eg legal fees etc), not income tax, although the top rate is still 40%.

There are various reliefs you can get - for example:
- Depending on how long you've held them for, the gain might be reduced by a percentage ("taper relief").
- You get an annual exemption for CGT which is separate to your personal allowance for income tax (£9,200).
- If you are going to use the money to invest in more property (or certain other things) there's a chance that you could "roll over" the gain, ie not have to pay anything now but pay more later when you sell the next asset.

Generally though the tax won't be payable until 31 January 2009 (assuming you are selling in the tax year between 6 April 2007 and 5 April 2008).

It's not difficult but the result will be quite specific to your circumstances. If you want to find a Chartered Tax Adviser in your area, try https://www.tax.org.uk.

Edit: You're right that you also get an exemption from CGT if you live in the property. Note that if you've ever lived in any of the properties you're selling, some of the gain might be exempt now even if you haven't lived there for a while. If you have never lived there, this can't apply.

jaggy23

Thanks Gingercordial. Have made a note of what you said and going to see an accountant about things. Cheers.