Capital Gains Tax and Personal Allowance

AnnaMT

I am retiring from work in March 2016. I also have a buy to let property that I want to sell in the next tax year 16/17.
I do not intend to have much other income in the 16/17 tax year (as long as the tenants move out) - my private pension will kick in in the 17/18 tax year and other income is now covered by the new allowances against interest and share dividends.
My capital gain is likely to be arond £80k just looking at how much the value of the property has gone up since I inherited it.
Will I be able to use my personal allowance as well as the capital gain allowance against the CGT? Will I also have to pay some at the higher rate? Apart from the costs of selling the property is there anything else I can offset against the CGT?

chrismac1

No to the personal allowance, though it means some of the CGT will be at 18% not 28%. Have you ever lived in the property? If so there will be some Principal Private Residence Relief, plus Letting Relief. Other costs to offset are the costs of buying, plus any improvement costs not claimed as rental expenses.

AnnaMT

Thanks chrismac1. I have already set improvement costs against tax rental. I have never lived at the property that was my Father's. I'm happy to pay the tax that's due, it's just that I do fill in my own self assessment so just want to get it right.

booksurr

you state that your savings and dividends income will be covered by the respective allowances, that may indeed mean you will not pay any income tax but, technically they count as taxable income, therefore they will affect how much of your gain is at the 18% rate

for example, using 15/16 year values, the income tax higher rate applies from £42,385 (ie £10,600 income tax personal allowance + 31,765 basic rate band)

if we assume you have zero pension and salary but you have say 1,000 interest and 4,000 dividends your taxable income would be 5,000. Obviously you would pay zero income tax but, using these rates, the CGT calculation would be :

gross gain 80,000 - CGT personal allowance 11,000 = 69,000 net taxable gain
taxable at 18%: 42,385 - 1,000 - 5,000 = 36,385
taxable at 28%: 69,000 - 36,385 = 32,615

grey_gym_sock

booksurr wrote: »

you state that your savings and dividends income will be covered by the respective allowances, that may indeed mean you will not pay any income tax but, technically they count as taxable income, therefore they will affect how much of your gain is at the 18% rate

for example, using 15/16 year values, the income tax higher rate applies from £42,385 (ie £10,600 income tax personal allowance + 31,765 basic rate band)

if we assume you have zero pension and salary but you have say 1,000 interest and 4,000 dividends your taxable income would be 5,000. Obviously you would pay zero income tax but, using these rates, the CGT calculation would be :

gross gain 80,000 - CGT personal allowance 11,000 = 69,000 net taxable gain

agreed so far.

taxable at 18%: 42,385 - 1,000 - 5,000 = 36,385

that looks wrong.

you have a £10,600 personal allowance, which can only be set against income, not gains. and a £11,000 CGT allowance, which can only be set against gains, not income. and a £31,760 basic rate band, which can be set against either income or gains; i.e. however much of it isn't set against income is available to set against gains.

if total income is less than £10,600, then it is entirely covered by the personal allowance. the rest of the personal allowance is unused. and the whole £31,760 basic rate band can be set against gains, which are taxed as 18% ... but you can't have £36,385 of gains taxed at 18%.

but suppose that total income is £15,600 ... £10,600 is set against personal allowance, and the other £5,000 against basic rate. (the latter happens even if there is no tax on pay, because the income is interest which falls within the zero-rate starting band or the personal savings allowance, or because it's dividends which fall within the dividend allowance.) that leaves the remaining £26,760 of the basic rate which is set against gains, so the first £26,760 of gains is taxed at 18%, and the rest at 28%.

(though you don't actually have to do the calculations yourself under self-assessment - you report the income and gains, and HMRC will tell you what you owe. still, nice to know what's going on.)

taxable at 28%: 69,000 - 36,385 = 32,615

AnnaMT

Many thanks - this has clarified everything for me and is much appreciated. As you say the calculation will be done for me under self assessment but it's good to know what's going on.

Anna

[Deleted User]

Rather than quote all of grey gym sock's post - which I wholly agree with, it appears that booksurr has simply added the personal allowance to the basic rate band. It should read therefore:

£42385-£10600- £5000-£1000 = £25765.

The knowledge that he displays on this forum would strongly suggest that this is simply a slip of the keyboard.

booksurr

grey_gym_sock wrote: »

if total income is less than £10,600, then it is entirely covered by the personal allowance. the rest of the personal allowance is unused. and the whole £31,760 basic rate band can be set against gains, which are taxed as 18% ... but you can't have £36,385 of gains taxed at 18%.

you are of course correct, bit of a :doh: moment there from me