Capital Gains Tax U Turn

tonytsdiver

Whilst I welcome today's decision (or u turn) regarding the policy on Capital Gains Tax calculations, I feel like suing the Government!

I have accrued the full 75 % taper relief available on my business premises, so I decided to sell before the change's came into effect, thus saving an extra 20 k in tax! I complete on the sale tomorrow.

Now I learn of the u turn and could of held out for a better price!

RayWolfe

You can't please some people even some of the time.

MickKnipfler

No prizes for guessing who you'll be voting for next election then?

tonytsdiver

MickKnipfler wrote: »

No prizes for guessing who you'll be voting for next election then?

Is there a real alternative though? At least Mr B was a decent chancellor in his time :eek:

56cheffy

I have a property that I have let out for over 17 years, I believe I am/was allowed £9200 pa allowance....Is this now all lost and when I come to sell do I have to pay a flat rate of 18% for all the profit?...Or does it start at 18% from the start of this tax year?

I bought the house for £120000, it is now worth £320000..an increase of £200000........my allowance allows me £156400 for 17 years...If I sell do I have to pay 18% on the whole £200000 or 18% on difference which is £43600?

I hope that makes sense to someone!

DeepSporran

56cheffy wrote: »

I have a property that I have let out for over 17 years, I believe I am/was allowed £9200 pa allowance....Is this now all lost and when I come to sell do I have to pay a flat rate of 18% for all the profit?...Or does it start at 18% from the start of this tax year
...
...

my allowance allows me £156400 for 17 years
...

I think you're mixing up the tax-free allowance (which will continue) and the taper relief
(which will disappear).

The tax-free allowance is indeed £9200 this year, but it can't be multiplied up by the number
of years you've owned the asset(the property in your case). It's a use-it-or-lose-it allowance. It can be used to reduce the value of any capital gain you've realised this tax year, but you can't carry forward the value of the unused allowance from a previous year when you didn't need it.

Taper relief, on the other hand, allows you to reduce the capital gain you've realised by a percentage which increases according to the number of years you've owned the asset. Taper relief will be discontinued after April.

In your example, you paid £120,000 for the house. You sell it for £320,000. Capital gain is £200,000.If you sold this year, you could then apply the taper relief of 40% (since you've owned the house for more than 10 years) to get a net gain of £120,000. The tax free allowance is £9200 (only this year's allowance is allowed !) so the gain is reduced to £110,800. That's what you'll pay tax on at (probably) 40%, so the tax bill is about £44,000. If you sell next year, you don't get the taper relief, only the tax-free allowance. So you pay tax on £200,000 minus £9200. So that's £190,800 on which you'll pay tax - but at the new rate of of 18% (not 40%) So your bill will be about £34000 (which is LESS than the £44,000 bill if you sell this year).

Thus it MIGHT actually be better for you tax wise to sell next year compared with this year.

A big BUT though : I've ignored some other factors which may apply e.g.

If you've ever lived in the house as your main residence, you can pro-rata the capital gain and pay less tax. In this case you can also treat the last 3 years of ownership as if you were living there, even if it was actually rented out.

You can use 'letting relief' to reduce the capital gain under some circumstances.

etc, etc.

It's all quite complicated I'm afraid, so unless you can completely get your head round the rules, it's worth getting professional help from an accountant, or asking HMRC for advice (they are actually quite helpful in my experience)

56cheffy

DeepSporran...many thanks for your explanation..VERY informative..:beer:

56cheffy

Thanks jimmo....the house was also once my main residence for 3 years (88/91)prior to letting it out...How does that affect things?

DeepSporran

jimmo wrote: »

In the example given by Deepsporran Indexation is a significant factor.

You're correct of course. It does make a big difference. I didn't mention it specifically, as I hadn't taken the time to work out the numbers, and wanted mainly to clear up the confusion between taper relief and the £9200 allowance.

I didn't think it likely that the OP would be able to actually get as far as exchanging contracts by April 5 anyway (I presume he has tenants at the moment), even if he decided it might be worth his while to sell now - and that's a big if, depending on all the other factors that come into the calculation. Looks like main residence relief and maybe lettings relief do apply.

56cheffy

Blimey...now you know my life story...LOL....:rolleyes: