CGT workings out!

richy10

Hiya

Could anyone tell me the CGT I would owe on the following please:

My partner and I bought 2 bed house in June 07 for £145000, converted to 2 1bed flats October 07. Sold each flat for £125000. I earn £16500k per year, partner £18000 per year (before tax). Converted flats for £20000 including estate agents and legal fees etc.


Richard

CLAPTON

I asume property was held in both names

sale price = 250000
less purchase of 145000 = 105000
less 20,000 costs = 85,000

less CGT allowance 9,200 x 2 = 18400
so taxable gain is 66,600

so thats 33,300 each

your income is 16500 so you will pay 20% on the first 23,325 approx and the rest at 40%
OH will pay 20% on the first 21850 and 40% on the rest

silvercar

If you hadn't sold the flats yet, I would have suggested selling one now and one next tax year in order to gain two lots of CGT allowance each.

Actually, I would now have said delay one sale to next year and one to the year after so that you also benefit from the new CGT flat rate of 18%.

Hindsight being that wonderful thing.:;

richy10

Hi Clapton

Are my workings out correct?

Me 23325 x 20% = 3990 + 9675 x 40%= 4665 = Total 8655

Partner 21850 x 20% = 4370 + 11150 x 40% = 4460 = Total 8830

Grand Total = 8655 + 8830 = 17485



P.S Could I bring a third person in on this i.e sell a share to my father to reDUCE cgt?

Richard

CLAPTON

clearly your arthimetic is incorrect.

whether a third person reduces tax depends upon the circumstance... if three of you had originally bought the property then yes because you could have used 3 lots of 9,200 rather than only 2 lots.
However once you own the property giving someone a share counts as a disposal of CGT purposes and so would be taxable at that time... it might reduce tax or not depends upon the detail.

richy10

As I thought my maths is incorrect?!

Could tou correct it?!!

Rich

rocky_robin

So the 3 year disregard doesn't apply, in the above case, because the property on which the gain was made wasn't owned for long enough ?

We've got all this to come next April, as we sold my other half's house in May

Bought in September 2001 for £67,500
Sold May 2007 for £139,000

So a profit of £71,500

However the property was rented out from March 2003 (when my partner moved in with me) until September 2006 when we put it up for sale),so we assumed there were various periods we could disregard in working out the taxable sum.

Have I got 2 different calculations mixed up ?

silvercar

Introducing a third person works well if they are a spouse of one of the other owners, otherwise it would count as a disposal for CGT purposes. You would have to balance the gain you would get on making the transfer against the costs of doing the legal work. The revenue may be suspicious that the transfer was done only to avoid tax.

Sell both this year

You 23325 x 20% = 4665
+ 9675 x 40%= 3870 = Total 8535

Partner 21850 x 20% = 4370
+ 11150 x 40% = 4460 = Total 8830

Grand Total = 8535 + 8830 = 17365

Sell one this year and one next

profit (assume halved) = 42,500

2 lots of 9,200 = 18,400

liability = 24,100 ie 12,050 each

So all taxed at 20% ie 2 x 20% x 12,050 = 4,820

This would then be repeated in the following tax year under current rules so another 4,820 tax due in the following year (if earnings are the same)

Total tax = 9,640

Tax changes

If yesterday's changes become law and are as has been highlighted in the press releases.

Gain on two flats = 85,000

less CGT allowance of 9,200 each = 66,600

All taxed at 18% flat rate. Tax = 11,988

If sold in separate tax years, you would gain 4 lots of the 9,200 allowance effectively, reducing the gain over the 2 years to 48,200.

All taxed at 18% flat rate ie 8,676

Bear in mind that house prices can move year on year, you may be better selling now, you may not.

Also the new tax regime may be tweaked before it becomes law.

CGT allowances may change.

Future budget changes could effect things.

........

silvercar

rocky_robin, please start your own thread, it gets too confusing with 2 calculations going in the same thread.

(Basically you will get PPR relief for when it was her home plus the last three years of ownership. You would also get letting relief which would wipe out the remaining gain. So no tax to pay!)

richy10

Thankyou Silvercar, you have been most helpful.

Could you answer this question please?

If I sell 1flat next April at £125k this would cover the cost of my mortgate on the property give or take. Would I pay CGT? I bought property for £145k, then I sold second flat a year later at £125k. What would the workings out be if different from above?!

Rich

silvercar

richy10 wrote: »

Thankyou Silvercar, you have been most helpful.

Could you answer this question please?

If I sell 1flat next April at £125k this would cover the cost of my mortgate on the property give or take. Would I pay CGT? I bought property for £145k, then I sold second flat a year later at £125k. What would the workings out be if different from above?!

Rich

Isn't that the fourth option I gave earlier? The size of your mortgage is not relevent to the CGT calculation. It would seem reasonable to apportion the purchase costs equally between the two flats, unless you have a reason for arguing a different split.