Capital Gains question
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73Jonathan123
Posts: 111 Forumite
I bought a ruin in 2014 for 25000. My partner and I spent every weekend and holiday working on it for 2.5 years and managed to do it up really nicely. I've been running it as a holiday let but the amount of hassle in return for minimal income made us look at selling. The estate agent valued it at 120k. I have receipts for maybe 17k worth of materials.
I earn over the personal allowance so it looks as though I would have to pay capital gains on the 78k that it has increased in value. It was 2.5 years of our lives spent labouring and now the government is going to get a huge chunk of that seems to make it not really worth while.
Have I understood it correctly? Is there no allowance for value increasing over time or for years of labour?
I earn over the personal allowance so it looks as though I would have to pay capital gains on the 78k that it has increased in value. It was 2.5 years of our lives spent labouring and now the government is going to get a huge chunk of that seems to make it not really worth while.
Have I understood it correctly? Is there no allowance for value increasing over time or for years of labour?
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Comments
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73Jonathan123 wrote: »I earn over the personal allowance so it looks as though I would have to pay capital gains on the 78k that it has increased in value. It was 2.5 years of our lives spent labouring and now the government is going to get a huge chunk of that seems to make it not really worth while.
Have I understood it correctly? Is there no allowance for value increasing over time or for years of labour?
Unless it was your main and only residence then yes you have understood it perfectly.
You will still walk away with £50,000 would isn't bad at all.0 -
If you don't want to pay too much, engage an Accountant, there are a number of allowances and charges that can go in place to mitigate your tax bill. Not least your £11,700 CGT allowance for the tax year.I am a Mortgage Broker
You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0 -
73Jonathan123 wrote: »or for years of labour?
Isn't that what wages are for?0 -
Isn't that what wages are for?
Sorry, I don't understand. There were no wages. We couldn't afford to pay anyone so did the work ourselves. A lot of work! It would have cost a fortune to pay someone else to redo the roof, fit the doors and windows, put up walls,plumb in a bathroom, fit the kitchen etc etc.0 -
What can I deduct from my taxable gain?
You're allowed to deduct certain costs involved with buying and selling property from your gain when working out your CGT bill. These include:- solicitors and estate agents' fees
- stamp duty when buying the property
Search for 'property CGT allowance' on Google and hit the link for Which, the 4th one down at the time of this writing. Sorry, my account is too new to post links here.
Seems pretty useful.
I think the wages comments are related to 'you could pay yourself a wage for the work done'. I would recommend getting a CGT accountant. For a few hundred quid you could save thousands!0 -
so you have let the property - that is clear cut because it removes the risk that you would be held to be a property developer looking to buy, do up and sell - property developers pay income tax, not CGT
the downside is as a property investor the items you can offset against the 95k headline gain are more restricted:
- the 17k of materials costs for which you have paperwork to support
- your costs when you purchased eg: legal fees etc - if you have paperwork, (or if not - do you want to gamble on HMRC catching you out?)
- your costs when selling: EA and legal fees
you have never lived in the property as your main/only private residence therefore cannot claim private residence relief and so cannot claim letting relief.
is the property owned by both of you? Did both oif you account for the profit on the holiday lets: yes or no? If yes then there is a case for showing that the beneficial ownership of the property is shared, in which case the CGT is split according to the respective shares.
be careful though, if you are legally married it is now far too late to alter ownership arrangements when you are already trying to sell.
It is not a business asset owned by a limited company, so no, there is no "allowance" for inflation/increasing value over time. That rule ended decades ago for individual taxpayers.
so, if owned by ypourself 78k less the CGt allowance £11,700 will give your taxable gain.
if jointly owned, split the 78k according to share, and each person deducts their own 11,7000 to get their own taxable share.0 -
I take it the 11,700 is not just for CGT but my income? So as I earn more than 11,700 a year then that doesn't come into the CGT equation?
Thanks0 -
73Jonathan123 wrote: »I take it the 11,700 is not just for CGT but my income? So as I earn more than 11,700 a year then that doesn't come into the CGT equation?
Thanks
That's not correct, it is a separate allowance.0
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