Property tax

redbaron6969uk

??? I have recently bought a property to renovate and let.......However, given the looming downturn in the market, the hike in interest rates and the fact that my property has gained in value quite substantially, I have thus decided to sell and don't know if to pay off my mortgages or buy another property to renovate with the proceeds. I realise that I will be liable for tax but have no idea how much or what will be the best way to go about finding out..........In brief......I bought for £107000 in both mine and my wifes name It will be worth £160000 for resale. I bought with a mortgage to let and with funds from a remortgage on our main home but have not yet let the property............Any Ideas how best to proceed?

lisyloo

I think you will probably have to pay Capital gains tax.
I am a little hesitant because if you serially do properties up for profit as a business then it is income tax that has to be paid but I'm guessing you will be treated like a BTL.

The CGT will be charged on your profit (£53K) and I suspect you will be able to deduct some costs from that e.g. estate agents fees.

Both you and your wife then get a CGT allowance of £8.2K EACH, so you will not pay any tax on the first £16.4K of your profit (I'm assuming you aren't using the allowance for anything else this tax year).

You will have to pay tax on the remaining profit at your which I believe is at your marginal tax rate so will depend on your income.

Personally I think you will be better off getting a professional e.g. an accountant invoved.

A few hundred quid is money well spent in this situation in my opinion.
They will be able to minimise your profit (on paper) by deducting the relevant allowances.

You would hopefully be better off after paying their fees as a result of getting the advice, plus you have the peace of mind of knowing it's been done correctly so no nasty shocks from the tax office in future.

redbaron6969uk

Thanx for your reply, as you suggest an accountant will be employed, at present I am just fielding for suggestions, Does anyone know the rate of capital gains tax.....or an easy way to find out?.....government sites are not the most fun to navigate......

lisyloo

Here is the page you want

http://www.inlandrevenue.gov.uk/rates/cgt.htm

and the relevant words are:

The amount chargeable to CGT is added onto the top of income liable to income tax for individuals and is charged to CGT at these rates:

below the starting rate limit at 10%,
between the starting rate and basic rate limits at 20%,
and above the basic rate limit at 40%.

So it depend entirely on what both of you earn.
The 40% band kicks in at about £36K so at the point at which your income plus profit (minus allowance and expenses) goes over £36K then you will have to pay 40%.

The profit should be split equally between you (unless you have a diferent equity split on the title deeds of the property).

Hope that helps.