Capital Gains Tax

tortoiseshellcat

Hi does anyone know anything about capital gains tax please. My mum has a flat that she is selling and she's been told she has to pay 40% on the profit she has made, basically when she married and moved in with my step-dad she sold the family home and bought a small flat (as an investment but also for my younger sister to move into)

After my sister moved out mum has rented the flat out, to try and get some sort of income to top up her pension (it hasn't been great for her though as she has been unlucky with tenants causing her to have to keep forking out for new flooring, redecorating etc).

Anyway she has now decided to cut her losses and sell up. Obviously she has to pay capital gains tax on the profit made but can someone please offer guidance. I have researched it and it looks like she'll have to pay 28% on the profit she's made. However she's been told by an accountant that she has to pay 40%.

Please can someone clarify and help me to understand it so I can help her.

Innys1

The max CGT rate is 28%. The minimum rate is 18%, if any of her gain is liable to CGT.

This will help:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323679/hs283.pdf

booksurr

I take it the "accountant" adviser is retired because they are totally out of date (unless they are just ignorant)

as mother has never lived herself in the investment flat her CGT will be:

selling price less original purchase cost less costs of buying and selling costs (EA fees, legal fees, SDLT). She might also has spent money on capital improvements (not on repairs) and so could also deduct that, but she would need to know what she is doing if she wants to do that as understanding what is an improvement rather than a repair is not always clear cut.

The above gives her "gross gain" and from that she can then deduct her personal allowance (currently 11,100) to give the net taxable gain

if the net figure is +ve then she will pay CGT at 18% and /or 28% based on how much remains of her lower rate (18%) tax bracket. To work that out add together all her sources of taxable income (salary, savings interest, etc) and see how much is left from £41,865.

That remaining amount is how much she will pay at 18%, but if the net gain is larger than that figure then the excess amount will be taxed at 28%, and if her income is >41,865 to start with the whole of the gain will be at 28%.
If the net gain is so small that adding it to her income still means she does not reach 41,865 then all of the gain will be at 18%, however that is somewhat unlikely given she has owned the flat for sometime, much more probable she will have some at 18% and some at 28%

BTW the link provided above by Innys1 refers to out of date info, and given she has never lived in the flat, it is irrelevant anyway as she is not entitled to private residence relief.

tortoiseshellcat

Thank you both for your replies. That's exactly what I believed to be the case. I just wanted to check as the accountant (and also the I.R.) Said she would have to pay 40%. I wonder if they thought she was enquiri g about inheritance tax for some reason, or maybe the amounts for CGT have changed recently?

Innys1

The CGT rates haven't changed for around 5 years. She's right that IHT is at 40%, mind, unless some is left to charity.