Will this tax go up?

PoGee

I have 2 questions.
Will cgt increase to 20% (basic) and 40%? I'm talking about property, but not your main residence.
If I earn £30k, I pay the lower paye tax. But is it correct that if a gain on property is £80k, I would pay (roughly) £14k of the gain at the present 18% and the rest at 28%? Based in Scotland.
Just wondering if I may end up paying 40% CGT after years of scrimping and saving for a financially secure retirement.

Tucosalamanca

Who knows, tax rates can change at any time and nobody has a crystal ball.

If CGT is a concern, why choose to invest in property for retirement in the first place?
From a tax perspective, residential property hasn't been a good investment for a long time.
CGT is one of many risks when owning more than one residential property, risks that you were happy to accept.
It is what it is, there's no point in worrying about it...

Bookworm105

CGT once was aligned with income tax rates, so it will just be history repeating (again)
the rest is just crystal ball gazing pointlessness

PoGee

Tucosalamanca said:

Who knows, tax rates can change at any time and nobody has a crystal ball.

If CGT is a concern, why choose to invest in property for retirement in the first place?
From a tax perspective, residential property hasn't been a good investment for a long time.
CGT is one of many risks when owning more than one residential property, risks that you were happy to accept.
It is what it is, there's no point in worrying about it...

I became a landlord by accident. Purchased my first property aged 21. Then 2nd one age 29. Parents said I'd be stupid to sell 1st one so rented it out. Property 1 has increased in value a lot. I suppose I've had the benefit of extra income but now that I'm close to age 60, it's getting too much to deal with. So the plan was to sell it at retirement.
If my own kids who are aged late 20s weren't lackadaisical, I'd have passed it to them (at a fifth of the value...just enough to help me during retirement). One's a forever student. 
I then made the, now regrettable, decision to purchase a 2nd rental with an inheritance last year. That one hasn't increased in value. 

[Deleted User]

PoGee said:

Tucosalamanca said:

Who knows, tax rates can change at any time and nobody has a crystal ball.

If CGT is a concern, why choose to invest in property for retirement in the first place?
From a tax perspective, residential property hasn't been a good investment for a long time.
CGT is one of many risks when owning more than one residential property, risks that you were happy to accept.
It is what it is, there's no point in worrying about it...

I became a landlord by accident. Purchased my first property aged 21. Then 2nd one age 29. Parents said I'd be stupid to sell 1st one so rented it out. Property 1 has increased in value a lot. I suppose I've had the benefit of extra income but now that I'm close to age 60, it's getting too much to deal with. So the plan was to sell it at retirement.
If my own kids who are aged late 20s weren't lackadaisical, I'd have passed it to them (at a fifth of the value...just enough to help me during retirement). One's a forever student. 
I then made the, now regrettable, decision to purchase a 2nd rental with an inheritance last year. That one hasn't increased in value. 

Passing the property to your children ‘at a fifth of the value’ would have made no difference - they are connected persons and the value for CGT purposes would be the actual value at the time of transfer. 

PoGee

Ferro - yes I know, cgt will be at the market value and not the 'fifth value'. The fifth amount is what I would want from kids, with the rest gifted. I'm saying that I'd be generous. And like I say, I understand that cgt will not just be levied on the fifth amount.

Can someone help with the first question? If I'm a basic tax payer for earnings, why would I be charged 28% cgt and not 18% if selling the rental? This is on the basis of £30k salary and £80k increase in value of rental.

Also, is it correct that a person can gift yearly cgt allowance? Would that have worked for the rental by gifting the allowance each year to my kids so that by this time, there might have been no cgt to pay?

Hoenir

PoGee said:

Just wondering if I may end up paying 40% CGT after years of scrimping and saving for a financially secure retirement.

Property is not as tax efficient as a penson.  Hasn't been for some years. 

[Deleted User]

Bookworm105 said:

[Deleted User] said:

Bookworm105 said:

PoGee said:

Can someone help with the first question? If I'm a basic tax payer for earnings, why would I be charged 28% cgt and not 18% if selling the rental? This is on the basis of £30k salary and £80k increase in value of rental.

Also, is it correct that a person can gift yearly cgt allowance? Would that have worked for the rental by gifting the allowance each year to my kids so that by this time, there might have been no cgt to pay?

CGT tax band is based on "total income"
(30k salary - 12,570 personal (income tax) allowance) + (80k gain - 3k CGT allowance) = 67,457 total "income"
higher rate tax starts at 37,700
part of the gain is therefore at higher (CGT) rate

CGT due
80k - 3k CGT allowance = 77,000 taxable gain 
37,700 @ 18% = 6,786 tax
(77,000 - 37,700) @ 24% = 9,432 tax 
Total CGT payable = 16,218 

(the higher rate was reduced from 28 to 24 in the Spring 24 budget)

in principle there is nothing stopping you transferring 3k of property value to a single person every year, however, HMRC can challenge that as being "exploitation" of the annual exempt amount
CG18150 - Annual exempt amount: exploitation - HMRC internal manual - GOV.UK (www.gov.uk)

I think that you overlooked the fact that part of the basic rate band has been used at PAYE and, therefore, less than 37700 will be charged at 18.%. 

As it’s Scotland I stayed away from working out how much. 

scotland - argh - on that basis I  have deleted my comment 

And I mine, which quoted your post, 

Bookworm105

PoGee said:

Can someone help with the first question? If I'm a basic tax payer for earnings, why would I be charged 28% cgt and not 18% if selling the rental? This is on the basis of £30k salary and £80k increase in value of rental.

Also, is it correct that a person can gift yearly cgt allowance? Would that have worked for the rental by gifting the allowance each year to my kids so that by this time, there might have been no cgt to pay?

note higher rate CGT for residential property reduced from 28% to 24% wef Spring 2024 budget.

In order to calculate what tax rate applies to the gain you need to add up your total income. This comprises the net gain plus your net (income tax) income = total compared to the higher rate (income tax) threshold. 
The amount of gain in excess of the HR threshold is then taxed at the higher CGT rate 

So, in the context of your question, you are not a "basic rate taxpayer" as your total income is well above the HR tax band: (80,000 - CGT allowance) + (30,000 - personal allowance) = 94,430
Therefore you will pay some of the gain at 18% and the rest at 24%


re use of annual allowance. In principle you can transfer ownership of an asset in instalments, BUT as that is an obvious ploy HMRC has the right to challenge it as being annual exempt amount "exploitation" by means of fragmentation or splitting of the asset. Whether they will challenge it depends, in part, on whether it is cost effective for them to investigate (and how contrived is the fragmenting, eg: one normally sells a whole car, not a part of a car)
CG18150 - Annual exempt amount: exploitation - HMRC internal manual - GOV.UK (www.gov.uk)