What Tax Is Due On 2nd Property

aly

20 yrs ago my brother and myself were guarentees on my granda's mortgage, as it worked out cheaper for him to pay a mortgage than pay rent on the property. When he died the property was left to my brother and myself and we took over the mortgage, this was approx 13yrs ago. Since then we have had the same tennant in the property paying rent and we have paid tax each year on the rent/profit. My breother and myself own our own houses and now the tennant has moved on we are looking at selling the house, we still have a small mortgage on the property, and as you can appreciate the value of the house has gone up considerably in 13yrs. We will be looking at gaining approx £35k each after the sale of the house. I do not work at present but my brother does. What tax would be payable and is there anything we can do to reduce the tax bill?Any advice would be appreciated.

King_Of_Fools

It would be liable to Capital Gains Tax @ 40% on anything over £9200 so you would be looking at a tax bill of around £10k each.

budget_counsellor_shaz

Hi Aly,

If I was you I would speak to an account quite often the first appointment is free. It maybe worth paying an account as they know where all the loop holes are and also their bill is liable against the final tax bill.

Alternatively pop in and speak to the people at the tax office, everytime I've spoken to them they've been really helpful.....but be prepared to wait as you do not seem to be able to book an appointment time and I've had to wait ages in the past:rolleyes:

I hope that helps

Shaz

silvercar

We will be looking at gaining approx £35k each after the sale of the house.

You will pay tax on the difference between the price when you inherited the property and the price when you sell it. Is this £35k each based on the value at inheritance or the price when your granda bought it?

Assuming it is the gain since you both became owners and that you have allowed for selling and legal costs.

£70k gain is first reduced by indexation for the time you owned it before March 1998.

Assuming you inherited in Aug 1994 and sell Aug 2007.

indexation would reduce the 70k by about 12.5% ie down to 61.25k

You would then get taper relief from April 1998 to aug 2007, this would be at the maximum 40% relief, reducing the £61.25k to 36.75k

Assuming (again!) that you haven't used your personal CGT allownaces elsewhere, 9,200 each comes off that figure reducing it to 18,350 or 9,175 each.

You pay CGT at 10,20 or 40% depending if you are a non, basic or higher rate tax payer, though if the amount of gain moves you up a bracket it is calaculated at the appropriate (split if necessary).

So for a non-taxpayer the first 5,225 would be taxed at 10% and the remainder at 20% ie 5,225 x 10% + (9,175-5,225) x 20% = £1312.50

For a basic rate payer the tax would be 9,175 x 20%=£1,835; (£3,670 for a higher rate payer).

You would include the sale in your tax return for 2007-08 and the tax would be payable by Jan 2009. Ring your local tax office for a self-assessment form if you don't receive one.

Once you receive the proceeds from the sale, it would be sensible to put the money (or at least the expected tax amount) in a high interest savings account until the tax becomes due.

Your tax bill could be reduced by living in the property as your principal private residence, for at least a few months, until you sell it. This may not be feasible.

aly

wrote:

It was an ex-council house so my granda bought it for approx £9000 when he died and we took over mortgage it was worth approx £24,000 now it is worth approx £80,000 less £6500 mortgage. we have not deducted anything for selling/solicitor fees.

silvercar

So the gain is £56,000. (mortgage is not relevent for CGT purposes.)

On an £80,000 home I would think you would have legal fees of a few hundred and estate agents fees of over £1,000. So your gain could be nearer £54,000.

Repeating my previous calculations with this figure gives you each a gain, after your CGT allowance, of just under £5,000 each.

This reduces the tax bill for the non-payer to £500 and the basic rate payer to £1,000.