Capital gains tax question.

eddie123_2

I Have a property I bought in 1992 which I lived in as my main residence. In 1995 I moved into my then girlfriends house and rented out my own home. We married and I have lived in her house since then. She has sold her house some months ago and We have moved back into my house. We plan to sell my house fairly soon and use the proceeds of both houses to buy a larger place . My question is would I have to pay CGT when I sell ?
Any advice would be gratefully appreciated.
Thanks.

Bean_Counter

Answer is yes.

Can't say how much without the details. If you don't want to post details, check back through some of the previous CGT related threads and they will cover the basis of calculation.

Alternatively, check out the HMRC website.

silvercar

The CGT, based on the difference between the selling price and buying price and less sale/ purchase expenses and improvements, would be reduced by 40% because of the length of ownership and reduced by the time you have lived in it and the last three years of ownership. So out of 15 years of ownership roughly 6 would be discounted. So you are already down to about 36% of the gain, then deduct £9,200 CGT allowance (x 2 if you have put the property into joint names). All taxed at marginal rate and payable by the end of January following the tax year of sale.

eddie123_2

Hi Bean Counter.
I bought the property in 08/1992 for £50,000 and lived there untill 03/95.I moved back in 03/2007 and I am expecting the property to be worth about £200,000 when I sell.
Thanks for your reply.
Eddie

silvercar

Can I have a go?

Note: this calculation has been corrected in post #9 below. Expainations are clearer (or at least longer) in this post, so I haven't deleted it.

Sale price-purchase price=£150,000. selling costs eg estate agent, solicitor costs etc £5,000. Profit=£145,000.

taper relief @40% as you've owned it for over 10 years reduces liability to £145k x 60%=87k.

If you complete the sale in August that is 15 years of ownership of which 2.5 (ish) were as your main residence early on + the last 3 years of ownership. so 5.5 years of the 15 would be exempt. So the 87k reduces by 31.9k to 55.1k.

There is also letting relief (if you have let a property that was your main residence),

The amount of private letting relief that can be claimed cannot be greater than £40,000, and it must be the lowest of the following three values:
· £40,000;
· the amount of private residence relief that has already been claimed;
· the amount of any chargeable gain that is made due to the letting; that is, this is the amount that is attributed to the increase in the property value during the period it was let.

Which as far as I can see is £31.9k.

So the CGT liability is now at 23.2k.

You have a personal CGT allowance of £9,200, reducing the liability to 14k.

This would be charged at 10, 20 or 40% depending whether you are a non, basic or higher rate tax payer.

At basic rate it would be £2,800 at higher rate, £5,600. (though it could in itself move you to the higher band).
Payable by the end of January the year after the house sale. So sell soon and include it in your tax return for 2007-08 and pay by end Jan 2009.

Phew, I need a coffee!

Bean_Counter

silvercar wrote: »

Can I have a go?

Be my guest and enjoy the coffee!

Always100FC

he'd also be allowed indexation allowance upto 1998 which would be taken off before PPR and letting relief.
Taper relief comes after all these.

silvercar

OK, so indexation for August 1992 is 0.171, so the allowance is 0.171 x 50,000=8,550.

So taking £8,550 off the profit of £145,000 is 136,450.

5.5 years of the 15 years of ownership =50,032.

136,450-50,032=86,418.

letting relief would be restricted to 40,000=46,418.

Now the taper relief of 35% (since April 1998) leaves a 65% charge on the 46,418=30,172.

CGT allowance of £9,200 reduces this to £20,972.

At 40% tax this would be a £8,389 bill.

eddie123_2

Thankyou for all for the replies so far,
I have been trying to gather as much information together as I could to understand the CGT issue prior to selling and had pretty much worked out for myself the various relief's etc. but it is really handy to have so many different views on the subject.
Jimmo - In answer to your question , we married in 2001.
Silvercar - Great advice , I will have a little read up on index allowance as I have not heard of it before although I assume that was the system in place before taper relief. I preferred your first calculation though as I was paying less !!!
Thanks again and any further advice would be welcomed.

eddie123_2

Jimmo,
Sorry not to answer your question in full. No I havn't put the property in joint names as yet, it seams that maybe a good thing. Thanks for your informative response. I spoke to the accountant who normally fills in my tax return and she admitted to me that she wasn't that well informed on CGT, I think I will print off all the replies and hand them to her .....or maybe better still find an accountant who is !

silvercar

Jimmo, are you sure you can have 36 months "absence for any other reason" as well as the last three years of ownership exemption for CGT?