CGT on rented property

[Deleted User]

The £150000 very much makes you a higher rate taxpayer. If you earn £35000, for example, and have a 150000 gain, your capital gains bill will be:

12300 tax free
15000 at 18% = 2700
122700 at 28% = 34356
Total - 37056

Jeremy535897

Read the link I posted. It contains this:

"If you pay basic rate Income Tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

1. Work out how much taxable income you have - this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.

2. Work out your total taxable gains.

3. Deduct your tax-free allowance from your total taxable gains.

4. Add this amount to your taxable income.

5. If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above the basic tax rate."

weimo

Ok, another misunderstanding from me, I didn't realise a capital gain was treated as income. So in effect if you had no job whatsoever, sold the second house you would still end up paying the 28% to some degree. Well in this case I have no real option other than to keep renting, as it stands I lose far too much in tax on this anyway 40% goes to the tax man, so which ever way I turn I'm paying large amounts in tax. 

Jeremy535897

A capital gain is not treated as income, but the rate of capital gains tax you pay takes into account your taxable income.

Mickey666

In this sort of situation, supposing the OP lives in the house for quite a few more years, what's the process when it comes to selling?  I know it's our responsibility to inform teh taxman of any tax liabilities, but on the other hand, most people are not tax experts and can't be expected to know all the tax rules.  I know that doesn't really let people off the hook but that's the reality.   So the OP sells his current house as normal and because it's his main home there is no CGT payable.  Everyone knows that, right?  So he moves into his new main home for, say, five years or more and when he sells it . . . what?  He suddenly has to 'know' he has a CGT liability and must tell the taxman?  Or does he not bother because we all 'know' our main homes have no CGT liability.  Is there any mechanism by which the taxman is notified of the CGT liability?  I can't recall ever being asked when I bought a house I've sold or how long I've lived there, so there seems to be no audit trail.  Sure, they could find out by digging through the OPs financial history if they choose to, but how likely is that to happen?

Just wondering.

inspectorperez

When you are talking about a gain of £150K, I am just wondering what you are using as your base cost for setting against the expected proceeds? My recollection is that a death (i.e your grandfather) locks in the accumulated gain up to 2012 in the recognised probate value which should be the starting point in your calculations. Not sure of the context of location and property market which you do not disclose, but on the face of it, £150K gain does seem a lot over the last 8 years. Maybe I have missed something in the previous posts!

Jeremy535897

Mickey666 said:

In this sort of situation, supposing the OP lives in the house for quite a few more years, what's the process when it comes to selling?  I know it's our responsibility to inform teh taxman of any tax liabilities, but on the other hand, most people are not tax experts and can't be expected to know all the tax rules.  I know that doesn't really let people off the hook but that's the reality.   So the OP sells his current house as normal and because it's his main home there is no CGT payable.  Everyone knows that, right?  So he moves into his new main home for, say, five years or more and when he sells it . . . what?  He suddenly has to 'know' he has a CGT liability and must tell the taxman?  Or does he not bother because we all 'know' our main homes have no CGT liability.  Is there any mechanism by which the taxman is notified of the CGT liability?  I can't recall ever being asked when I bought a house I've sold or how long I've lived there, so there seems to be no audit trail.  Sure, they could find out by digging through the OPs financial history if they choose to, but how likely is that to happen?

Just wondering.

From 6 April 2020 you have to complete a return and pay the capital gains tax due within 30 days of completing the sale of residential property. If you had rental income and it ceases, HMRC may ask why. Stamp duty records and changes in Land Registry records are all ways of HMRC identifying a sale, plus the investment of the proceeds.

[Deleted User]

inspectorperez said:

When you are talking about a gain of £150K, I am just wondering what you are using as your base cost for setting against the expected proceeds? My recollection is that a death (i.e your grandfather) locks in the accumulated gain up to 2012 in the recognised probate value which should be the starting point in your calculations. Not sure of the context of location and property market which you do not disclose, but on the face of it, £150K gain does seem a lot over the last 8 years. Maybe I have missed something in the previous posts!

I outlined exactly that on my first post on this thread. The op did a lot of improvements.

Grumpy_chap

I think you should live in the house where you will be happiest and the best quality of life.  Then just pay the taxes that result as they arise.  To choose your residence as a tax avoidance / minimisation tool is the wrong priority.

weimo

House prices have spiralled out of control in my opinion hence the big jump, especially in the south east. Like I mentioned earlier in top condition at the time of death would have been 180k. It would be now sell for 280 - 300 I would imagine. The figures I quoted are not absolute as this is a theoretical sale atm.