Capital Gains Tax

Digger_Dog

My wife bought a house 3 years ago, which she rented out after our marriage last year. We now plan to sell it .

Question: When do we have to pay CGT, if we sell it? Is it 3 years after she bought it, 3 years after she moved out of it, or 3 years after we married?

Secondly - how much is it?

Han_naH

Firstly, you have a CGT allowance of £8.2K per year, every year.
So CGT is payable for the year in which you disposed of your extra property. Not sure about this 3 year business?

The profit you make on the house (sale price minus purchase price) is added to your income for that year (from your job). Subtract from this capital gain £8.2K (assuming you made no other capital gains), then you pay tax on this at your tax rate.

You can also subtract from this property profit some allowances, including rental allowance. See an accountant!

So, for example if you earn more than £31K per year, you're heading for a 40% tax whack.

It may also be in your interests to switch ownership of the house to the lowest earner, so you can pay tax at 10%, then 20% etc.

You really must pay for an accountant, as he will save you *far* more tax on this transaction alone than his fee. For example, I pay an accountant £200 for a whole year's Ltd Co. accounts, so the fee won't be much.

Bamf100

I think you can avoid CGT all together if the property is your main residence, but in this case it looks like Mr Brown will be rubbing his hands together with a big grin on his face at your expense! Don't set me off.

This type of tax really pains me as all it does is deter people from trying to make their money work for them by investing in property.

Check with the Inland Revenue, but as far as I'm aware you have to be living in a property for a certain amount of time before it can be classed as your 'main residence', I think it's 3 or 6 months.

If it was me (but bear in mind my total disgust of this type of tax) and it was viable with personal , financial circumstances etc, I would move the tenants OUT and move one of you IN for the period until it was officially THAT persons main residence.

Extreme I know, but hey if it goes in my pocket rather than the muppets running this sham then hey, I'll sleep a little better.

I hope Mr B doesn't read this or he will probably up the amount of time to 10 years or so. Grrrrrrrr >:(

Dracs

hello, first post, i have a similar query on cgt

My mother has just sold a property which is not her main residence and made a tidy profit.

She's not sure if she wants to buy another property with the proceeds of the sale. My question is when will Mr Brown take his CGT, would it be at the end of the financial year when she files her tax return.

I'm guessing if she buys another property she will not be hit with the tax, is there anywhere else where she could invest that money and not be hit with the tax

thanks - dracs

Reaper

She will pay it when she does her tax return. If she buys another property she will still have to pay the tax on the one she sold and will have to pay more tax on any profit when she sells the new one too.

As for tax free places to invest... well there aren't very many. The government doesn't let you avoid tax that easily or everybody would be doing it.

Off the top of my head there are:
* a cash ISA (but can only save £3000 max)
* a stocks and shares ISA (another £3000)
* a private pension topup (if she is working, unlikely to be worthwhile if not)
* ordinary shares, Unit Trusts etc - no tax as long as the profits do not exceed your Capital Gains Allowance, however no good for this tax year as the allowance has been blown selling her house.
* ordinary savings accounts - if she is not working she may not have used up her income tax allowance, in which case she can request the interest be paid to her tax free.
* er... that's it. I won't go in to things like EIS because they are very unlikely to be suitable.

Reaper

My wife bought a house 3 years ago, which she rented out after our marriage last year. We now plan to sell it .

Question: When do we have to pay CGT, if we sell it? Is it 3 years after she bought it, 3 years after she moved out of it, or 3 years after we married?

Secondly - how much is it?

You pay NO Capital Gains Tax. It used to be her main residence and then she moved out. In this case the last 36 months of ownership (up to the point where she sells it) are treated as if it were still her place of main residence even though it was rented out.

See this article for more details.

Han_naH

So,

Man owns and lives in house, rents out a flat.
Sells house, no CGT.
Keeps flat and becomes tenant himself in a new flat.
At this point nominate the rented flat as "main residence" status to avoid future CGT on it when sold.

Though not practically the main res., that article does indicate you can nominate in this way...?

John_M_Business

Also, I believe that CGT is only paid on the increase in VALUE of the property from the time it started being rented.

i.e. if you can prove that the value of the property (if you got a valuation at the time, all the better) has not risen (or not by much) then CGT shouldn't be a problem.

Cheers

John