Selling House calculating the cost of capital gains

Fatherjacob

Both me and my brother purchased an investment property 6 years ago for £132,000, at the time the idea was to live there and the only way to purchase due to our low income was by obtaining a buy to let mortgage ,we were selling on ebay plus had another flat purchased some years ago as our income.
When the property was first purchased back in 2013 my brother was at the same time finding work elsewhere ,i was left pretty much manage both properties whilst they were being rented.
Over the course of time we sold the flat , and i bought out my brothers share of the house .Although his name is still on the house we did make a written agreement.
Ive now had the property vacant for the last few weeks and have been cleaning it up.
The original thought was to re let the property ,but after the time spent preparing the property ive come to see alot of change in the area and not for the better. So much so i dont think i would want to live there for the long term.That coupled with the strong price increase from the time of purchase it looks like a realistic selling price of £265000.
My concerns is regarding the tax id have to pay , essentially i have been earning 11k for the last couple of years..which is the rental monies received.
Am i right in thinking that i would pay between 18% to 28% on the 132,000 capital gain?
The estate agent explained that i would have to pay 40% , which scares me , i would want to purchase another property for myself to live and try to maintain as much money as possible .
By the way the remaining mortgage is 12k and the original deposit was 30k.
help from anywhere would be well appreciated

Tom99

You can offset your purchase and disposal costs and, yes the CGT rates are 18%/28% and you have a £12,000 annual gain allowance.
However since this was a joint purchase with your brother you will need to work out how the gain is shared between you.
You presumably owned a 50% interest and when you brought your brother out that would have been a disposal for CGT for your brother and an acquisition of the 2nd 50% for you.

Fatherjacob

Thanks for the reply,
So it means that the the total capital gain would be for me to pay on the 132,000? But the capital gains percent won't go beyond 28 percent?
Like I said the 40 percent would be too severe and most likely swing my decision to just keep the house on the rental market.

Tom99

Fatherjacob wrote: »

Thanks for the reply,
So it means that the the total capital gain would be for me to pay on the 132,000? But the capital gains percent won't go beyond 28 percent?
Like I said the 40 percent would be too severe and most likely swing my decision to just keep the house on the rental market.

£265k-£132k=£133k is the gross gain, not the taxable gain.
You then deduct all your acquisition and disposal fees and then your annual allowance.
However since this was originally a joint purchase with your brother he has to be factored into the gain somehow.
When did you buy him out and what amount did you pay him for his 50% beneficial interest?

AnotherJoe

Question for experts here, presumably also the 40% won't apply to the whole amount (if it was 40%), it would be 18% up to one threshold, 28% to the next and then 40% above that?

Tom99

CGT on residential property is 18% up to the £50k basic rate income tax threshold and 28% for that part of the gain above that threshold. 28% is the max CGT rate payable not 40%.
If say the OP makes a taxable gain of £120k and has income of say £30k this tax year then £50k-£30k=£20k would be CGT at 18% and £100k at 28%.

00ec25

AnotherJoe wrote: »

Question for experts here, presumably also the 40% won't apply to the whole amount (if it was 40%), it would be 18% up to one threshold, 28% to the next and then 40% above that?

you know better than that!!!

it takes nanoseconds to look tax rates up
https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances

CGT is 18% and or 28% depending on how much your total taxable "income" is for the tax year of sale.
total Taxable income is your income subject to income tax (ie salary + all other income less income tax personal allowance) PLUS the net taxable gain (ie gross gain less costs and, where applic, CGT relief, and, finally less CGT allowance)
if that total is between £0 - 37,500 CGT is 18%
if that total is > £37,500 CGT is applied at 18% to the first 37,500 of the gain then then at 28% to the amount of net gain OVER 37,500

hence CGT rates are always referred to as 18% and or 28%

you never pay capital gains at 40%

take an extreme example: OP has 11k rental profits and no job, so no other income whatsoever
job £0 + other income £11k less (income tax) personal allowance 11.5 = £0 taxable income for income tax purposes
his gain is 132,000 less costs less allowance (12k) so lets say net gain 128,000
37,500 is paid at 18% = 6,750
128-37.5 = 90.5 is paid at 28% = 25,340

so if OP sells a property for 265,000, he could pay 32,090 CGT and walk away with 232,910 cash in his pocket

more realistically that won't be the case as he needs to account for the fact he appears to have acquired the property in two separate transactions , the 50% from his brother has a cost which has not yet been confirmed and so his gross gain is still unknown

Fatherjacob

00ec25 wrote: »

you know better than that!!!

it takes nanoseconds to look tax rates up

CGT is 18% and or 28% depending on how much your total taxable "income" is for the tax year of sale.
total Taxable income is your income subject to income tax (ie salary + all other income less income tax personal allowance) PLUS the net taxable gain (ie gross gain less costs and, where applic, CGT relief, and, finally less CGT allowance)
if that total is between £0 - 37,500 CGT is 18%
if that total is > £37,500 CGT is applied at 18% to the first 37,500 of the gain then then at 28% to the amount of net gain OVER 37,500

hence CGT rates are always referred to as 18% and or 28%

you never pay capital gains at 40%

take an extreme example: OP has 11k rental profits and no job, so no other income whatsoever
job £0 + other income £11k less (income tax) personal allowance 11.5 = £0 taxable income for income tax purposes
his gain is 132,000 less costs less allowance (12k) so lets say net gain 128,000
37,500 is paid at 18% = 6,750
128-37.5 = 90.5 is paid at 28% = 25,340

so if OP sells a property for 265,000, he could pay 32,090 CGT and walk away with 232,910 cash in his pocket

more realistically that won't be the case as he needs to account for the fact he appears to have acquired the property in two separate transactions , the 50% from his brother has a cost which has not yet been confirmed and so his gross gain is still unknown

Sorry for the lateness in this reply , i did pay my brother £17000 some three years ago , at the time we purchased the house he didn't put as much deposit as me ,something like 4 to 5 thousand. and at the time the agreement was made we calculated the value of the property to be , and place the percentage increase on the amount i would pay him.So original investment , plus percentage increase in value.

AnotherJoe

00ec25 wrote: »

you know better than that!!!

it takes nanoseconds to look tax rates up
https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances

Its the OPs job to look up tax rates, not mine i just took their 40% at face value. But i appreciate the correction. I've not paid CGT for some time since I'm burning my share gains down at under the limit each year.

But anyway so yes it looks as if the OPs fears are unfounded and reading between the lines, I suspect brother never paid CGT when he sold OP his half share, but once OP factors buying out brother, his CGT will come down massively anyway from what he fears.

Tom99

Fatherjacob wrote: »

Sorry for the lateness in this reply , i did pay my brother £17000 some three years ago , at the time we purchased the house he didn't put as much deposit as me ,something like 4 to 5 thousand. and at the time the agreement was made we calculated the value of the property to be , and place the percentage increase on the amount i would pay him.So original investment , plus percentage increase in value.

Since you and your brother are connected parties his sale to you of 50% will, for CGT purposes, be deemed to be at open market value not whatever you may have paid him at the time.
Say when you bought his share the value had increased from £132k to £172k. Your purchase cost would be £132k/2=£66k plus £172k/2=£86k total £152k.
That will lower your taxable gain but your brother should probably have made a CGT return and maybe paid some tax when he sold to you.