Capital gains tax - selling former marital home after 15 years...?

cton

Hello and thank you in advance for any information you can offer.

I am trying to better understand how I might be impacted by capital gains tax when I come to sell a former marital home that my ex wife has been living in for the past 15 years while I have continued to pay a portion of the mortgage (and most recently, all of the mortgage).

I retain a 20% stake in the property following the divorce. My children have lived there with their mother over the past 15 years but as they are now ready to fly the nest, the house can be sold and I can realise my share. I have previously lived in the property with my then wife for 7 years prior to the separation and divorce.

Based on what I have read, I will be subject to capital gains tax but I am wondering if the blow might be softened somewhat by means I'm am not aware of. I live in hope!

Assuming my share of the proceeds of the sale, before tax is [say] £30,000, what would I expect to pay in CGT and by what calculation please?

Many thanks!
D

Tixy

Hi,

The CGT calculation is based on the gain in value of your share of the property. So the proceeds figure alone doesn't help anyone give you an indication.

So how much did the property cost when bought, and how much is it being sold for?

cton

Ok, thank you.

The property was purchased for 71,000 back in 1993.

I anticipate a sale price of c. £200,000.

The mortgage is now interest only so there will be some £50,000 due to lender when sold.

Regards,
D

booksurr

cton wrote: »

Ok, thank you.

The property was purchased for 71,000 back in 1993.

I anticipate a sale price of c. £200,000.

The mortgage is now interest only so there will be some £50,000 due to lender when sold.

as stated tax is based on the gain, not what you borrowed or owe

your gain is 200 - 71 = 129 x 20% = 25,800
you can further deduct your 20% share of the purchase and selling costs (EA and legal fees)

the real calculation must be in months, the following is thus for illustration only:
ownership 22 years. It was your marital home for 7 years and therefore you also qualify for the "deemed occupancy period" covering the final 18 months of your ownership given you were no longer living in it at that time

So, you have PRR for the 7 year period it was your (then) marital home + 18 months making your relief: 25,800 x 8.5/22 = 9,968

you have your CGT personal allowance 11,100

your net taxable gain is 25,800 - 9,968 - 11,100 = 4,732

how much you pay depends on how much income you have. For example assuming you earning national average salary of 27,000 your total "income" for the year would be 27,000 + 4,732 = 31,732

the 18% CGT rate applies to the amount of gain between your salary and the threshold of 42,385
the 28% rate applies to any gain over the 42,385 threshold

in this example you would pay 4,732 x 18% = 851 tax as all your gain is at the 18% rate. Selling it for 200k means you receive £40,000 and out of that money you pay £851 in tax, hardly anything to be worried over?

cton

Ok...many thanks @booksurr.

I'd like to clarify one thing though.

Is there a transcription in the above example? The calculated next taxable gain is 6491 but you then go on to calculate my tax payable based on the private residential relief amount of 8209. Is this an error or am I not reading it right?

Also...as a 40% tax payer, how would the final equation change? I assume any tax take would now all be at the 28% rate...?

D

booksurr

cton wrote: »

Is there a transcription in the above example? The calculated next taxable gain is 6491 but you then go on to calculate my tax payable based on the private residential relief amount of 8209. Is this an error or am I not reading it right?

ooops , i have corrected the error

cton wrote: »

Also...as a 40% tax payer, how would the final equation change? I assume any tax take would now all be at the 28% rate...?

yes, all gain taxed at 28%

Tixy

You'd actually get around 8.5 years out of the 22 as Principle Private Residence Relief as you also get PPR for the last 18months of ownership regardless of whether you occupy the property.

So if the gain was £25,800 then as a ball park figure your taxable gain might be £4700 and be taxed at 28% - so possible CGT of just over ~£1300.

But as booksurr says this are only illustrative as it depends on the actual length of ownership and residence.

cton

Many thanks @tixy, @booksur - your information has reassured me that whatever the tax due, it's looking like it will be significantly less that I'd feared.

Regards,
D

booksurr

Tixy wrote: »

You'd actually get around 8.5 years out of the 22 as Principle Private Residence Relief as you also get PPR for the last 18months of ownership regardless of whether you occupy the property.

So if the gain was £25,800 then as a ball park figure your taxable gain might be £4700 and be taxed at 28% - so possible CGT of just over ~£1300.

But as booksurr says this are only illustrative as it depends on the actual length of ownership and residence.

thanks, it appears I was having a very off day given how many times I have explained CGT in the past!. You are of course also correct re the final 18 months :embarasse