CGT help please

beany

bought a BTL property in September 1991 for £44,500 and the tenants have said they would like to purchse (for £220,000)
we HAVE used our CGT allowence for this 2007/2008 tax year selling another property. (OH in retired and we want an easier life)

Can anyone please tell me if it would be better to sell before April 2008 using taper relief (I think that's what it's called) etc?
Or wait for next tax year as we will be able to use 2008/2009 joint allowance but have to pay the new CGT of 20%
thanks

silvercar

With full taper relief the 40% marginal tax rate becomes 24% but you will also have indexation relief allowance, so that reduces the rate further.

Next years flat rate is 18% plus you would have (2) CGT allowances of 9.4k.

Without doing the full calculation, for which you would need to say how much of the basic rate tax band you have left, I would think that if you are already a higher rate payer (or nearly so) it would be better to wait until next year.

The big unknown is what house prices will be like in a few months.

Remember it is the date of exchange that counts not completion.

beany

thank you silvercar
didn't know it is the date of exchange, that could be really useful.
at the moment we pay very little income tax, last couple of years between us we paid £200 / £300 pounds each year
OH retired and has the extra age allowence (born before April 1935) and my only income is from the rental properties

silvercar

So its worth doing a calculation.

Sell this year

indexation allowance increases the starting value from 44.5k to 53.75k. So the gain is 220-53.75-buying and selling costs of say 3.25=163k.

Taper relief reduces the 163k to 97.8k.

I don't think the age limits come into CGT as all the tax is liable for income tax ie there is no exempt amount (save for the CGT allowance).

Say your current income is £130 each, that would leave 2,100 each at 10% starting rate, 32369 at 22% and the remianing amount at 40%.

So with 97.8k between you, I reckon the tax bill would be £26,207 ie £13,103 each.

Sell next year

So the gain is 220-44.5-buying and selling costs of say 3.25=172.25k.

2 CGT allowances of 9,400 reduces gain to 153,450

18% CGT tax = £27,621ie £13,810 each.

As you were selling in a later tax year, you would not need to pay the tax money for another year (Jan 2010 instead of Jan 2009), so you could put the money in a high interest account and gain some interest on it. That could be worth another £6-700 each.

So the difference is marginal, I would say a bird in the hand.....

If you have buyers now, then sell and save the hassle.

beany

thank you silvercar
the help and kindness shown on this site to 'strangers' is just brilliant
can't thank you enough

Ivrytwr3

Next years flat rate is 18%

I read about this last year as a proposal. Is this definately going to happen?

We bought a property (wife and I) in 2005 for £92500 and am looking to sell soon for £120k, we are not higher rate tax payers and believe it would be better to wait until after Apr 1 to sell. Are we right?!

silvercar

There is talk of tweaking certain rules connected with small businesses, but no-one has suggested that the abolishment of the taper relief and indexation and the introduction of the flat rate won't happen.

Though I guess until it is passed the statute book nothing is certain.

A gain of £27,500 so say £25k after costs. using your CGT allowances of 9.2k each would leave a liability on £6,600. This year it would be taxed at 22% if you have enough "spare" basic rate allowance. so the joint bill will be £1,452.

Next year the allowance should be going to 9.4k, so the liability would be 6,200. At 18% that would be £1,116.

TBH the tax difference isn't that great so I would be looking at other factors. Will the property cost you while you wait to find a buyer? What will it be worth in Spring?