Capital Gains question - applying personal allowance

bring_back_threepenny_bit

Hi, I have worked out the Capital Gain as attorney for someone on a house they recently sold, that was bought in the 1980s and for which there are no reliefs available, only the 6k personal allowance. In addion, on page 8 of the form ('Working out your liability') it asks 'how much of your personal allowance do you want to apply?' The person will earn about £35k so they pay basic rate tax but as I understand it have £7.2k left before they hit the higher rate threshold and this amount can also be offset against CGT at the lower rate (18%). I'm not sure what happens if they earn more than expected, when they complete a return in April they will have used all their allowances so eveything over 35k will be taxed at 40%. If, on the other hand, they earn less than £35k, there will be unused allowance. I'm finding it hard to fathom this part of the equation.

[Deleted User]

If they earn £35k they will have only used 22430 of their basic rate band of 37700 leaving 15270 available.  (35000 less personal allowance of 12570) 

From the capital gain  the annual exemption of 6000 is deducted. The remainder will have 15270 taxed at 18% with the balance at 28%. 

If they were to earn 40000 as opposed to 35000 10270 would be charged at 18% with the remainder at 28%. 

We assume that there is no other taxable income. 

On the purchase price was the property bought prior to 31st March 1982? If so, you can substitute the value at that date - when values were rebased. 

bring_back_threepenny_bit

Thanks for your input, I'm still grappling with this. The house was bought in 1985 btw.
Having run the numbers through the HMRC calculator it shows a £19770 taxable gain at the 18% rate. This figure appears to be arrived at by subtracting the projected income of 30500 from the lower rate tax threshold of 50270. I arrived at my figure of 7200 by subtracting the 12570 allowance from the 19770 taxable gain. 

[Deleted User]

bring_back_threepenny_bit said:

Thanks for your input, I'm still grappling with this. The house was bought in 1985 btw.
Having run the numbers through the HMRC calculator it shows a £19770 taxable gain at the 18% rate. This figure appears to be arrived at by subtracting the projected income of 30500 from the lower rate tax threshold of 50270. I arrived at my figure of 7200 by subtracting the 12570 allowance from the 19770 taxable gain. 

There is no allowance of 12570 against capital gains - that is the personal allowance against other income. There is a separate allowance (exemption) of 6000 available against capital gains. 

I presume that you mean 35000, not 30500, of other income.  The tax position is as follows:

Earned income of 35000. 12570 personal allowance available, 22430 taxed at 20%. 15270 of basic rate band of 37700 still remaining. 

Capital gain 19770 less exemption of 6000 (unless the 19770 is after the 6000 exemption) is 13770. There is 15270 of basic rate available and the whole of 13770 is taxed at 18%. 

If the gain after 6000 exemption is 19770, 15270 is taxed at 18% with the remainder at 28%. 

[Deleted User]

I can’t edit yet. 

If the other earned income is indeed 30500 (you have mentioned two figures) 12570 is deducted as the personal allowance leaving 17930 is taxable at 20% rate. 19770 of the basic rate band remains. 

The chargeable gain is less than this and will all be charged at 18%.

bring_back_threepenny_bit

[Deleted User] said:

There is no allowance of 12570 against capital gains - that is the personal allowance against other income. There is a separate allowance (exemption) of 6000 available against capital gains. 

I presume that you mean 35000, not 30500, of other income. 

Thanks, that is what is really confusing me, I understood that the 12570 personal allowance is for income, not capital gains, which has a separate 6k exempt amount - but why, then, does the HMRC CGT Return form ask 'How much of your personal allowance do you want to apply?'

Yes I did mean 35k and not 30500

[Deleted User]

Can’t see that question anywhere on the form.

bring_back_threepenny_bit

[Deleted User] said:

Can’t see that question anywhere on the form.

Capital Gains Tax on UK Property Return for 2023/4, page 8, 5th question down.

[Deleted User]

bring_back_threepenny_bit said:

[Deleted User] said:

Can’t see that question anywhere on the form.

Capital Gains Tax on UK Property Return for 2023/4, page 8, 5th question down.

OK - so not the tax return submission but the ‘reporting within 60 days’ form. 

It’s actually quite logical. You may have used the capital gains exemption (or part thereof) elsewhere in the same tax year, or would prefer to use it elsewhere. 

bring_back_threepenny_bit

[Deleted User] said:

OK - so not the tax return submission but the ‘reporting within 60 days’ form. 

It’s actually quite logical. You may have used the capital gains exemption (or part thereof) elsewhere in the same tax year, or would prefer to use it elsewhere. 

Yes, that would make perfect sense, except the things that puzzled me were:
a) Why they refer to 'your Personal Allowance' and not 'your exempt amount' ; and
b) Why it then says 'you cannot deduct your Personal Allowance from your gain', when if they meant the Exempt Amount, then surely you could deduct it from your gain?

[Deleted User]

bring_back_threepenny_bit said:

[Deleted User] said:

OK - so not the tax return submission but the ‘reporting within 60 days’ form. 

It’s actually quite logical. You may have used the capital gains exemption (or part thereof) elsewhere in the same tax year, or would prefer to use it elsewhere. 

Yes, that would make perfect sense, except the things that puzzled me were:
a) Why they refer to 'your Personal Allowance' and not 'your exempt amount' ; and
b) Why it then says 'you cannot deduct your Personal Allowance from your gain', when if they meant the Exempt Amount, then surely you could deduct it from your gain?

Reasonable questions - I think I have sussed it now. Not very clear on the form. 

The previous question asks about other gross income. The question to which  you refer concerns the amount of personal allowance which you wish to apply to this other gross income in order to calculate the amount of basic rate band already utilised and, thus, remaining to determine the rate of capital gains tax payable. 

This is clear in the ‘Notes to help you report Capitsl Gains tax on UK property.