Help - do I need to pay tax and CGT?

cantianella

Hi

I truly am a thicko so try not to blind me with science.

I own a right to buy high rise flat in Manchester that I bought 2 years ago. I have lived them for 4 years prior to buying it. At Christmas 2007 I moved to York to support a family member. I currently rent a house. I began to rent my flat out last May to help pay the mortgage. I have decided to stay here and so will try to get new tenants in my flat in May. Also I have put my flat up for sale.
Can anyone tell me how much tax about I should be paying? My mortgage is £150 on £28,000 over 25 years and my rental income is £427.50 after the management company take their fee.
Also what is capital gains tax - I have no idea - is there an implication for me if I sell my flat?
I'm worried - can anyone help?

Elaine_Wilson

You will be liable to income tax on the profit you make renting the flat. The profit is calculated by deducting your expenses from the rent reveivable.

The expenses will include -

mortgage interest (not capital repayment)
maintenance costs
any service charge paid
agent's fees
any other direct cost of renting.

If you have let the flat furnished then you will be able to claim a deduction of 10% of the rent to cover wear and tear on the furniture. You will not then be able to claim for the cost of replacing the furniture but will probably be better off overall this way.

The profit will be taxed at either basic rate or higher rate depending on your other income.

The profit you make when you sell it is subject to capital gains tax but there are a number of reliefs available, the main one being principal private residence relief, which will mean you pay no tax. If you decide to keep it and sell it later some tax may be payable.

Is there any penalty if you sell it? I'm thinking that a number of years ago in this area if you sold a right to buy property within a certain time then part of the discount could be reclaimed. I don't know if this is still in existence.