Capital Gains Tax

bucketman

I'm looking for some advice, I am a 40% tax payer and working at present, and have a second rental property which I am considering selling as I plan to spend six months out of the country starting in October 2016.

My property could do with some work on it and would need a new kitchen and bathroom, but I'm not sure whether doing the work would add enough in value to be worth it, I have tenants in the house until Feb 16.

My question is around reducing capital gains tax as much as possible, if I did pay out for the new bathroom & kitchen would this reduce the bill (but would probably be counter acted in the increase in selling price), should I put it up for sale now, or would I benefit by waiting until the next financial tax year, would the fact that I am not in the country for six months earning reduce it, or does it not impact the rate, and does the rate change in 16/17 Tax year?

pjcox2005

Basic question, but do you know for certain that there will be a capital gain on the property?


What's the likely sale value versus the cost you acquired the property for? And is it just you who owns it or does anyone else hold an interest in the property e.g. partner?

bucketman

It's just me that owns it, and it's increased in price since I bought it around, £75K I think.

pjcox2005

In that case I suggest:


- Any capital improvements can be set off against the gain. However, if you don't think your work will increase the price by more than the cost of doing it then it's an overall cost to you although offset in part by reduced tax.


- If the work does add more value than cost then your increasing the capital gain.


So effectively it's not a tax question but more a view from you/estate agent whether the work is worth doing.


Potentially there may be a benefit deferring to a year where you are earning less as the CGT rate is 18% for low rate taxpayers, and 28% for anything over the threshold of £31,785 plus personal allowance. However, if you've got other rentals and you are working for 6 months then presumably it would only be a small amount (if any) that would be under the threshold for tax purposes so probably shouldn't be the main driver.

le_loup

Unless you can be certain of recovering the whole of the expenditure you would be spending money with a builder in order to save up to 40% of the same money from tax.
Is that a sign of madness, or do you hate society so much that you will do anything to avoid paying your whack?

bucketman

Perfect, Thanks!

bucketman

That's not what I'm saying at all! I'm not sure if/or how much it would change the value, and my thoughts were more around whether the difference in value, would be worth the effort to do it!

chappers

But remember as has been pointed out you will also be increasing the capital gain, despite you being able to offset the works against it.
As has been said for the small amounts involved this isn't really so much a tax issue as a marketing one.