Capital gains tax - how much is due
Discussion
Older married Relative who won't take proper financial advice (despite my urging) bought a house with spouse. to move into with in sept '89 for £56k now worth circa £200k (which doesn't seem that good compared to other areas) with £15k of recently receipted improvements and potentially needs another £10k spending on it to modernise it to be family friendly. A couple of years ago spouse transferred ownership to relative in its entirety to safeguard it from being spent elsewhere, or being part of their estate.
Personally I've suggested renting the house out, but it's just too much hassle for them, so they are considering selling up. I've mentioned changing it to nominated main residence before selling up, but don't know enough about it or the tax-implications, and while I know a small amount about finance, it's hard when down to the real nitty gritty. I want to keep them right to secure their continued retirement.
How would you work out the potential tax due, if it was to be sold at £200k?
Personally I've suggested renting the house out, but it's just too much hassle for them, so they are considering selling up. I've mentioned changing it to nominated main residence before selling up, but don't know enough about it or the tax-implications, and while I know a small amount about finance, it's hard when down to the real nitty gritty. I want to keep them right to secure their continued retirement.
How would you work out the potential tax due, if it was to be sold at £200k?
1. Your home (principal private residence) is CGT exempt.
2. Other properties are subject to CGT whether or not rent is received.
3. Gifting a house away in the hope of avoiding Inheritance Tax doesn't work if you still live in it - unless you pay a market rent to the new owner. The new owner will in any case be subject to Income Tax on the rent and CGT on any gain as in 2 above.
4. Home improvement - this needs care,
2. Other properties are subject to CGT whether or not rent is received.
3. Gifting a house away in the hope of avoiding Inheritance Tax doesn't work if you still live in it - unless you pay a market rent to the new owner. The new owner will in any case be subject to Income Tax on the rent and CGT on any gain as in 2 above.
4. Home improvement - this needs care,
- Maintenance is NOT allowable against CGT, even refitting a whole bathroom or kitchen.
- Genuine improvements are allowable. In broad terms you need to have either demolished some walls or built some walls in order for work to qualify as an improvement.
Claudia Skies said:
1. Your home (principal private residence) is CGT exempt.
2. Other properties are subject to CGT whether or not rent is received.
3. Gifting a house away in the hope of avoiding Inheritance Tax doesn't work if you still live in it - unless you pay a market rent to the new owner. The new owner will in any case be subject to Income Tax on the rent and CGT on any gain as in 2 above.
4. Home improvement - this needs care,
1. MPs can flip houses, perhaps others can too. Can't see them going for this, as very risk adverse.2. Other properties are subject to CGT whether or not rent is received.
3. Gifting a house away in the hope of avoiding Inheritance Tax doesn't work if you still live in it - unless you pay a market rent to the new owner. The new owner will in any case be subject to Income Tax on the rent and CGT on any gain as in 2 above.
4. Home improvement - this needs care,
- Maintenance is NOT allowable against CGT, even refitting a whole bathroom or kitchen.
- Genuine improvements are allowable. In broad terms you need to have either demolished some walls or built some walls in order for work to qualify as an improvement.
3. Not avoiding Inheritance tax by gifting as such, as it was a transfer between spouses to avoid any chance of potentially grasping (step) kids (at behest of their spouses, when already adequately provided for anyway) on kicking the bucket, is slightly different type of planning. Although I've advocated taking inheritance tax planning with experts ATM they don't feel they have time.
4. This was high spec double glazing all round to improve insulation , replacing serviceable single glazing. Would this count?
Ballpark figures on how amount due is calculated, might just help persuade them to seek professional advice on all the options available to them, so not looking a private favour of an exact calculation, just an idea on the figures to allow them the consider the implications.
I.e are gains subject to some sort of indexing against inflation?
I'm confused. Are you saying they've transferred ownership of the house they are living in to another family member? Did they take any professional advice about that? If not they really should do as there are a number of potential tax issues there.
If they still own the house and live in it, then there is no CGT liability.
If they still own the house and live in it, then there is no CGT liability.
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