Working out CGT payable on disposal of house

Sinc19

Please could anyone tell me whether the cost of an EPC is an allowable deduction in calculating the gain/loss from a disposal of a residential property? Would it be allowable as it is an incidental selling cost as you can't sell a property without obtaining an EPC?

Also, how do you determine the CGT rate that applies? If someone made a private pension contribution to extend their basic rate band, and ensure they did not pay tax at the higher rate, does that mean their CGT would be at the basic rate band of 18% rather than 24%?

Thanks in advance.

Jeremy535897

HMRC say you can deduct the cost of an EPC as a selling cost:
https://community.hmrc.gov.uk/customerforums/ifp/116e5e8a-771d-ee11-a81c-000d3a8751e3
You treat the capital gain (less annual exemption) as if it were the top part of your income, so if you pay into a pension and increase your basic rate band, that may reduce the rate of tax on all or part of your capital gain.

Bookworm105

Sinc19 said:

Also, how do you determine the CGT rate that applies? If someone made a private pension contribution to extend their basic rate band, and ensure they did not pay tax at the higher rate, does that mean their CGT would be at the basic rate band of 18% rather than 24%?

how much, if any, CGT payable at 24% is based on your "total income" 
if your income is so high that you are using pension to remain as a basic rate taxpayer for income tax purposes it is almost certain that most of your gain will fall into the higher rate CGT bracket.

It is not as simple as the rate at which you pay income tax on your income becomes your CGT rate.
For the CGT tax band purpose, the CGT rate is actually based on a (notional) "total income" using the formula: 

income subject to income tax - income tax personal allowance (12,570) + net CGT taxable gain - CGT personal allowance

If that total is less than £37,700 then you would pay all your CGT at 18%
but, if that total is > £37,700, you will pay CGT at 24% on the amount of the gain in excess of 37,700 
(obviously therefore some may be at 18%, but I suspect in your case the majority will be at 24% as most of your gain will be above that threshold)

Capital Gains Tax: what you pay it on, rates and allowances: Capital Gains Tax rates - GOV.UK (www.gov.uk)

as Jeremy says above, your taxable CGT gain is the "top slice" of your total "income" 

Sinc19

Bookworm105 said:

Sinc19 said:

Also, how do you determine the CGT rate that applies? If someone made a private pension contribution to extend their basic rate band, and ensure they did not pay tax at the higher rate, does that mean their CGT would be at the basic rate band of 18% rather than 24%?

how much, if any, CGT payable at 24% is based on your "total income" 
if your income is so high that you are using pension to remain as a basic rate taxpayer for income tax purposes it is almost certain that most of your gain will fall into the higher rate CGT bracket.

It is not as simple as the rate at which you pay income tax on your income becomes your CGT rate.
For the CGT tax band purpose, the CGT rate is actually based on a (notional) "total income" using the formula: 

income subject to income tax - income tax personal allowance (12,570) + net CGT taxable gain - CGT personal allowance

If that total is less than £37,700 then you would pay all your CGT at 18%
but, if that total is > £37,700, you will pay CGT at 24% on the amount of the gain in excess of 37,700 
(obviously therefore some may be at 18%, but I suspect in your case the majority will be at 24% as most of your gain will be above that threshold)

Capital Gains Tax: what you pay it on, rates and allowances: Capital Gains Tax rates - GOV.UK (www.gov.uk)

as Jeremy says above, your taxable CGT gain is the "top slice" of your total "income" 

Thanks for that. So making pension contributions (although increasing the income tax basic band) has no effect on what CGT rate you pay at - is that correct?

[Deleted User]

Sinc19 said:

Bookworm105 said:

Sinc19 said:

Also, how do you determine the CGT rate that applies? If someone made a private pension contribution to extend their basic rate band, and ensure they did not pay tax at the higher rate, does that mean their CGT would be at the basic rate band of 18% rather than 24%?

how much, if any, CGT payable at 24% is based on your "total income" 
if your income is so high that you are using pension to remain as a basic rate taxpayer for income tax purposes it is almost certain that most of your gain will fall into the higher rate CGT bracket.

It is not as simple as the rate at which you pay income tax on your income becomes your CGT rate.
For the CGT tax band purpose, the CGT rate is actually based on a (notional) "total income" using the formula: 

income subject to income tax - income tax personal allowance (12,570) + net CGT taxable gain - CGT personal allowance

If that total is less than £37,700 then you would pay all your CGT at 18%
but, if that total is > £37,700, you will pay CGT at 24% on the amount of the gain in excess of 37,700 
(obviously therefore some may be at 18%, but I suspect in your case the majority will be at 24% as most of your gain will be above that threshold)

Capital Gains Tax: what you pay it on, rates and allowances: Capital Gains Tax rates - GOV.UK (www.gov.uk)

as Jeremy says above, your taxable CGT gain is the "top slice" of your total "income" 

Thanks for that. So making pension contributions (although increasing the income tax basic band) has no effect on what CGT rate you pay at - is that correct?

It can. 

Another way of looking at it:


 50270 plus grossed up pension contributions less other taxable income - what’s left? That amount will be the gain charged at 18% with the rest at 24%. 

If there is nothing left the whole gain is chargeable at 24%. 

(Both after deducting the annual exemption of £3000)

Clearly any increase in contributions will reduce the rate from 24% to 18% on the grossed up amount  but … is it really that tax efficient to gain an additional 6% relief?

Jeremy535897

To be fair, if you pay £4,000, you get £5,000 in your pension scheme and another £300 in reduced capital gains tax.

Bookworm105

Sinc19 said:

Thanks for that. So making pension contributions (although increasing the income tax basic band) has no effect on what CGT rate you pay at - is that correct?

no that is not correct. Paying more in pension decreases the size of your "income subject to income tax" and therefore increases the residual amount of the gain available to be taxed at the basic CGT rate.

possibly easier to see with numbers, (some may not like the presentation of this, as the pension grossing up is glossed over, but it is for illustration only)

example 1 - no pension
(salary 40,000 - 12,570 PA) = 27,430 "income subject to income tax" 
(20,000 net gain - 3,000 CGT allowance)  = 17,000 net capital gain 
 "total income" = 27,430 +17,000 = 44,430
HR (income tax) band starts at 37,701 so total income is greater and so higher rate CGT will partly apply 

CGT due 
amount of gain taxed at CGT lower rate: residue of the basic rate band: (37,700 - 27,430) = 10,270 x 18 % = 1,849
residue of the net gain taxed at higher rate: (17,000 - 10,270) = 6,730 x 24% = 1,615
CGT payable 1,849+1,615 = 3,464

example 2 - with pension
salary 40,000 less pension contribution 5,000 = 35,000
35 - 12,570 = 22,430 "income subject to income tax" 
17,000 net capital gain
 "total income" = 22,430 +17,000 = 39,430
HR (income tax) band starts at 37,701 so total income is greater and so higher rate CGT will partly apply 

CGT @ 18% (37,700 - 22,430) = 15,270 x 18 % = 2,479
CGT @ 24% (17,000 - 15,270) = 1,730 x 24% = 415
CGT payable 2479+415 = 3,164

so paying 5,000 into the pension reduces the CGT by £300 and as Jeremy says also gets you the tax relief on the pension anyway, so a win win in tax terms 

Sinc19

Bookworm105 said:

Sinc19 said:

Thanks for that. So making pension contributions (although increasing the income tax basic band) has no effect on what CGT rate you pay at - is that correct?

no that is not correct. Paying more in pension decreases the size of your "income subject to income tax" and therefore increases the residual amount of the gain available to be taxed at the basic CGT rate.

possibly easier to see with numbers, (some may not like the presentation of this, as the pension grossing up is glossed over, but it is for illustration only)

example 1 - no pension
(salary 40,000 - 12,570 PA) = 27,430 "income subject to income tax" 
(20,000 net gain - 3,000 CGT allowance)  = 17,000 net capital gain 
 "total income" = 27,430 +17,000 = 44,430
HR (income tax) band starts at 37,701 so total income is greater and so higher rate CGT will partly apply 

CGT due 
amount of gain taxed at CGT lower rate: residue of the basic rate band: (37,700 - 27,430) = 10,270 x 18 % = 1,849
residue of the net gain taxed at higher rate: (17,000 - 10,270) = 6,730 x 24% = 1,615
CGT payable 1,849+1,615 = 3,464

example 2 - with pension
salary 40,000 less pension contribution 5,000 = 35,000
35 - 12,570 = 22,430 "income subject to income tax" 
17,000 net capital gain
 "total income" = 22,430 +17,000 = 39,430
HR (income tax) band starts at 37,701 so total income is greater and so higher rate CGT will partly apply 

CGT @ 18% (37,700 - 22,430) = 15,270 x 18 % = 2,479
CGT @ 24% (17,000 - 15,270) = 1,730 x 24% = 415
CGT payable 2479+415 = 3,164

so paying 5,000 into the pension reduces the CGT by £300 and as Jeremy says also gets you the tax relief on the pension anyway, so a win win in tax terms 

Thanks - very helpful with the numbers.

Say your taxable income before an adjustment to the basic tax band due to pension contributions was above the basic band threshold, that would mean you should pay CGT at the higher rate of 24%. What if the sale completed before the end of the calendar year, and you paid the CGT within the 60 day window but then you made pension contributions that moved you out of the higher tax thresholds before the end of the tax year? Would you just claim a tax refund after you have made the pension contributions?

[Deleted User]

Sinc19 said:

Bookworm105 said:

Sinc19 said:

Thanks for that. So making pension contributions (although increasing the income tax basic band) has no effect on what CGT rate you pay at - is that correct?

no that is not correct. Paying more in pension decreases the size of your "income subject to income tax" and therefore increases the residual amount of the gain available to be taxed at the basic CGT rate.

possibly easier to see with numbers, (some may not like the presentation of this, as the pension grossing up is glossed over, but it is for illustration only)

example 1 - no pension
(salary 40,000 - 12,570 PA) = 27,430 "income subject to income tax" 
(20,000 net gain - 3,000 CGT allowance)  = 17,000 net capital gain 
 "total income" = 27,430 +17,000 = 44,430
HR (income tax) band starts at 37,701 so total income is greater and so higher rate CGT will partly apply 

CGT due 
amount of gain taxed at CGT lower rate: residue of the basic rate band: (37,700 - 27,430) = 10,270 x 18 % = 1,849
residue of the net gain taxed at higher rate: (17,000 - 10,270) = 6,730 x 24% = 1,615
CGT payable 1,849+1,615 = 3,464

example 2 - with pension
salary 40,000 less pension contribution 5,000 = 35,000
35 - 12,570 = 22,430 "income subject to income tax" 
17,000 net capital gain
 "total income" = 22,430 +17,000 = 39,430
HR (income tax) band starts at 37,701 so total income is greater and so higher rate CGT will partly apply 

CGT @ 18% (37,700 - 22,430) = 15,270 x 18 % = 2,479
CGT @ 24% (17,000 - 15,270) = 1,730 x 24% = 415
CGT payable 2479+415 = 3,164

so paying 5,000 into the pension reduces the CGT by £300 and as Jeremy says also gets you the tax relief on the pension anyway, so a win win in tax terms 

Thanks - very helpful with the numbers.

Say your taxable income before an adjustment to the basic tax band due to pension contributions was above the basic band threshold, that would mean you should pay CGT at the higher rate of 24%. What if the sale completed before the end of the calendar year, and you paid the CGT within the 60 day window but then you made pension contributions that moved you out of the higher tax thresholds before the end of the tax year? Would you just claim a tax refund after you have made the pension contributions?

The 60 day submission is a best estimate of your liability but must be paid. When you come to complete your tax return for 2024/25 you declare the full disposal (again) and also detail the amount of tax paid.  Any refund or further tax due will be detailed in the resultant calculation for that year. 

Have a look at the paper version of 2023/24 return with particular regard to boxes 9 and 10.

https://assets.publishing.service.gov.uk/media/660bbb40f9ab417b75eea375/sa108_2024.pdf

Sinc19

Please could someone tell me if the following costs are allowable deductions in calculating the capital gain:
* Land Registry fees on the initial transfer of the property
* Fees paid to a solicitor to complete the ID1 form required as part of the transfer of title
* Postage paid to send documents to the Land Registry and Conveyancer.
I believe they are all deductible because they directly relate to acquiring or selling the property.
Thanks in advance.

Sinc19

Sinc19 said:

Please could someone tell me if the following costs are allowable deductions in calculating the capital gain:
* Land Registry fees on the initial transfer of the property
* Fees paid to a solicitor to complete the ID1 form required as part of the transfer of title
* Postage paid to send documents to the Land Registry and Conveyancer.
I believe they are all deductible because they directly relate to acquiring or selling the property.
Thanks in advance.

Could anyone help please?