CGT calculation help needed on selling second property, pension income is income tax threshold

Duncan77

Hi, 
I have a small flat that is not my main property but a second property. 
I bought it in 2013 and am thinking of selling it imminently. 
It has probably gained about 80 or 90k over the 11/12 years I've had it. (I bought it at auction and did it up a fair bit).  
I've never paid CGT before and don't know much about it. 
I thought I had a relief for each year I owned the second property, but am told you only get the relief for the current year and it's now only about 3k?
I pay no tax currently as my income is only £11,500 from a private pension and I'm not old enough yet for my state pension. I have a small income from savings interest (also under threshold for tax).
So another question is what rate of CGT will I pay as a non tax payer? 
I can only find info for basic rate or higher rate tax payers. 
Any help or advice to reduce the tax bill appreciated as I will need to use the capital from the sale to boost my income until I'm old enough for the state pension, it's got to last me 7 years....
TY in advance.

Nomunnofun1

On the gain, whatever it may be, you will pay £37700 at 18% with the excess at 24% after first utilising the £3000 tax free amount. 

The gain should be reported and tax paid within 60 days. 

https://www.gov.uk/report-and-pay-your-capital-gains-tax

eskbanker

Duncan77 said:

So another question is what rate of CGT will I pay as a non tax payer? 
I can only find info for basic rate or higher rate tax payers. 

You are classified as a basic rate taxpayer, even if your taxable income is below your personal allowance.

Duncan77 said:

It has probably gained about 80 or 90k over the 11/12 years I've had it. (I bought it at auction and did it up a fair bit).  

[...]

Any help or advice to reduce the tax bill appreciated as I will need to use the capital from the sale to boost my income until I'm old enough for the state pension, it's got to last me 7 years....

Your circumstances aren't taken into account, i.e. the CGT will be calculated according to the rules and what you're left with is what it is, regardless of how long you want it to last.  However, if you spent considerable amounts on improving the property, then these may be deductible, alongside buying and selling costs:

Deduct costs

You can deduct costs of buying, selling or improving your property from your gain. These include:

• estate agents’ and solicitors’ fees
• costs of improvement works, for example for an extension (normal maintenance costs, such as decorating, do not count)

https://www.gov.uk/tax-sell-property/work-out-your-gain

Dazed_and_C0nfused

Nomunnofun1 said:

On the gain, whatever it may be, you will pay £37700 at 18% with the excess at 24% after first utilising the £3000 tax free amount. 

The gain should be reported and tax paid within 60 days. 

https://www.gov.uk/report-and-pay-your-capital-gains-tax

You are probably correct however if the op has pension income of £11,500 and say £2,000 in taxable interest they have used either £930 or £2,190 (if Marriage Allowance applicant) of their basic rate band leaving less available for their CGT calculation.

Nomunnofun1

Dazed_and_C0nfused said:

Nomunnofun1 said:

On the gain, whatever it may be, you will pay £37700 at 18% with the excess at 24% after first utilising the £3000 tax free amount. 

The gain should be reported and tax paid within 60 days. 

https://www.gov.uk/report-and-pay-your-capital-gains-tax

You are probably correct however if the op has pension income of £11,500 and say £2,000 in taxable interest they have used either £930 or £2,190 (if Marriage Allowance applicant) of their basic rate band leaving less available for their CGT calculation.

Point taken - wasn’t sure how ‘small’ the income from savings was as described by the op. 

Bookworm105

for the sake of numbers to illustrate the calculation

the point at which CGT is paid at 24% rather than 18% is based on your total "income" 
total "income" = income that counts towards income tax thresholds less income tax personal allowance + gross capital gain less allowable capital costs less (one) CGT allowance in year of sale.
If you pay zero income tax, it does not mean you will only pay CGT at its lower rate if the gain is big enough....

OP mentions a gain of £80,000 to £90,000 on a second home (so no private residence relief available) but lets take the lower figure, so:
gain 80,000 - CGT allowance 3,000 = net taxable gain 77,000
(obviously legitimate capital improvement costs can also be deducted but OP shows no sign of knowing the distinction between an allowable capital cost and disallowable repair (revenue) cost, so I shall ignore them for now)

pension 11,500 + savings interest (lets say 1,070) = 12,570 less income tax PA -12,570 = 0 income subject to income tax + net capital gain 77,000 = total "income" 77,000

basic rate tax threshold 37,700
therefore CGT due
1st 37,700 @ 18% = 6,786
residue (77,000 - 37,700) = 39,300 @ 24% = 9,432
total CGT payable 6,786 + 9,432 = 16,218

as OP has not given us the actual sales proceeds, we cannot say how much real cash OP will actually get from the sale to fund the next 7 years, but whatever that is, he will need to pay around £16 - 1£7K of it in tax 

silvercar

Did you ever live in it as your principal residence? 

Were any of the improvements capital in nature?

Duncan77

silvercar said:

Did you ever live in it as your principal residence? 

Were any of the improvements capital in nature?

Thanks for the answers, the fog is starting to clear.

Yes between April and August 2023, it was for that short time my only residence
So just 5 months, between selling my 1st main residence and buying the next main residence.

I bought it at auction. It had no fitted kitchen and no shower, just a bath, so I did those but only on the cheap really.
It had a leaking roof so I got that fixed and the flashings done. Plus the damage to the ceiling internally from the leak. I also bought a garden cabin and had that put in. 
Insulated & boarded loft myself.
Oh & fitted wardrobes which I bought second hand and paid cash to have put up.
Other than that complete redcoration, carpets etc and the garden overhaul from a sprawling mess of weeds & brambles. New gate & fencing.
Not sure what from that is deductible, but wish me luck with finding any receipts!

Duncan77

Bookworm105 said:

for the sake of numbers to illustrate the calculation


.
..... Etc 

Bookworm that is so helpful, thank you

silvercar

Duncan77 said:

silvercar said:

Did you ever live in it as your principal residence? 

Were any of the improvements capital in nature?

Thanks for the answers, the fog is starting to clear.

Yes between April and August 2023, it was for that short time my only residence
So just 5 months, between selling my 1st main residence and buying the next main residence.

I bought it at auction. It had no fitted kitchen and no shower, just a bath, so I did those but only on the cheap really.
It had a leaking roof so I got that fixed and the flashings done. Plus the damage to the ceiling internally from the leak. I also bought a garden cabin and had that put in. 
Insulated & boarded loft myself.
Oh & fitted wardrobes which I bought second hand and paid cash to have put up.
Other than that complete redcoration, carpets etc and the garden overhaul from a sprawling mess of weeds & brambles. New gate & fencing.
Not sure what from that is deductible, but wish me luck with finding any receipts!

That small time when it was your PPR gives you exemption for those 5 months plus the last 9 months of ownership. So, using a linear calculation, you have 14 out of say 140 months ownership. So you can reduce the gain by 10% at the start of your calculation. 

If you don’t have receipts reasonable and justifiable estimates should be accepted. Though of that list, most is maintenance. I would have thought only the garden cabin, fitted kitchen and shower would be capital.