CGT Advice (Selling house).
Discussion
Morning all!
I'm wondering if anyone can just clear up a couple of questions I've got regarding my CGT liability on a house I'm currently selling. I bought it in May for £240k, and currently have it on the market at £325k. During this time I haven't lived in it, though it is the only property I own (I rent elsewhere) - I assume therefore that I will be paying CGT on the profit I make (minus all costs/fees involved in improving it)? My income from my job is only about £1k per month, so am I right in assuming that I would only pay 18% CGT on the profit from the property? Aside from finding every receipt and invoice I have for the house and deducting those from the profits to reduce my liability, is there anything else I should be doing?
Cheers!
Dom
I'm wondering if anyone can just clear up a couple of questions I've got regarding my CGT liability on a house I'm currently selling. I bought it in May for £240k, and currently have it on the market at £325k. During this time I haven't lived in it, though it is the only property I own (I rent elsewhere) - I assume therefore that I will be paying CGT on the profit I make (minus all costs/fees involved in improving it)? My income from my job is only about £1k per month, so am I right in assuming that I would only pay 18% CGT on the profit from the property? Aside from finding every receipt and invoice I have for the house and deducting those from the profits to reduce my liability, is there anything else I should be doing?
Cheers!
Dom
db10 said:
Correct. You can deduct you annual exempt amount from the gain as well 10,600
Cheers, I had known about that - I'm just wondering about little things like the fact I sold a car and lost a few hundred quid, can this be used as a loss to offset a few hundred quid of profit on the house? Just basically wondering if there are any bits and pieces like that to reduce my liability! Also, do you know if I'd definitely pay 18% (rather than 28%) CGT on the profit - I'm a basic rate tax payer, but if you took the profit into account as income that'd make me a higher rate payer...just wondering if that changes anything?Dom
Eric Mc said:
Thre is no set time limit. Indeed, in some circumstances, you can successfully claim Main Residence Exemption wiothout ever having lived in the house.
Interesting, what would these circumstances be? It is tempting to move into the house now for the few months until the sale goes through, however I think it'd be iffy especially considering I sold another one last year having done it up, so I think they could quite easily demonstrate that I was doing it with the aim to make a profit.Dom
Conversely, merely moving into a property that you own (for any period) may not turn it into your Main Residence either.
The legislation is fairly complex - but actually quite logical.
Moving in would be the first step in getting the exemption. You would also need to take steps that you intended it to be your main residence too - such as changing your postal address or notifying those who communicate with you regularly - such as HMRC for instance.
Theoretically, the gain is apportioned between the time period it was your Main Residence and the time period it wasn't. However, you are also allocated three free years to add tro your Main Residence period. If you had owned the property for three years or less, thios would remove the CGT entirely.
There is also Commercial Letting Relief (I'd better mention this or at least one other accountant who posts here will probably make a fuss) but it probably would not be of any use to you in this situation.
There was a discussion on PH on this topic only a few days ago.
The legislation is fairly complex - but actually quite logical.
Moving in would be the first step in getting the exemption. You would also need to take steps that you intended it to be your main residence too - such as changing your postal address or notifying those who communicate with you regularly - such as HMRC for instance.
Theoretically, the gain is apportioned between the time period it was your Main Residence and the time period it wasn't. However, you are also allocated three free years to add tro your Main Residence period. If you had owned the property for three years or less, thios would remove the CGT entirely.
There is also Commercial Letting Relief (I'd better mention this or at least one other accountant who posts here will probably make a fuss) but it probably would not be of any use to you in this situation.
There was a discussion on PH on this topic only a few days ago.
Edited by Eric Mc on Tuesday 2nd October 10:27
The OP should be very careful that he isn't considered as trading which would mean any profit is dealt with as income rather than capital gains.
However, assuming you honestly consider that isn't the case, the CGT profit would be net of all legal fees, Agent fees on sale, stamp duty, cost of improvement and similar.
To claim PPR, you would need to show the property was your main residence as explained above and for a reasonable time before placing it for sale - whilst HMRC may always enquire into your affairs, I would think you could then claim the 36 month exemption reducing your gain to nil.
David
However, assuming you honestly consider that isn't the case, the CGT profit would be net of all legal fees, Agent fees on sale, stamp duty, cost of improvement and similar.
To claim PPR, you would need to show the property was your main residence as explained above and for a reasonable time before placing it for sale - whilst HMRC may always enquire into your affairs, I would think you could then claim the 36 month exemption reducing your gain to nil.
David
sumo69 said:
Thanks Eric that you think I am making a "fuss".
I would call it the full and correct advice.
By the way you still haven't explained the 36 month exemption correctly, but I won't make a "fuss".
If anyone wants the full facts - they need to pay me I would call it the full and correct advice.
By the way you still haven't explained the 36 month exemption correctly, but I won't make a "fuss".
(Or do their own research).
Eric Mc said:
Conversely, merely moving into a property that you own (for any period) may not turn it into your Main Residence either.
Theoretically, the gain is apportioned between the time period it was your Main Residence and the time period it wasn't. However, you are also allocated three free years to add tro your Main Residence period. If you had owned the property for three years or less, thios would remove the CGT entirely.
Sorry, not quite following that - could you explain a bit more?Theoretically, the gain is apportioned between the time period it was your Main Residence and the time period it wasn't. However, you are also allocated three free years to add tro your Main Residence period. If you had owned the property for three years or less, thios would remove the CGT entirely.
Cheers!
Dom
Cheers guys, sounds like I'll be liable as I'd thought - pretty straight forward! My only other question is what would make the definition of it being taxed as CGT or income tax?
Dom
ETA - And also, is the profit you're being taxed on for the CGT taken into consideration to work out whether you're liable for 18% or 28%? I.e. in my normal job I'm only a basic tax rate payer, but taking this profit into account I'd be a higher rate payer?
Dom
ETA - And also, is the profit you're being taxed on for the CGT taken into consideration to work out whether you're liable for 18% or 28%? I.e. in my normal job I'm only a basic tax rate payer, but taking this profit into account I'd be a higher rate payer?
Zeemax
Your gains, net off all losses, reliefs and annual exemption are added to your income to ascertain the appropriate CGT rate.
So your total income and net gains would have to exceed £42475 prior to the higher 28% rate being chargeable - in all likelihood you would be paying a hybrid rate made up of some taxable @ 18% and the remainder @ 28%.
The question of whether the profit is subject to income tax is not straightforward - its not a simple issue but your motive when buying the property is a starting point.
If you want, PM me as it may be useful to obtain afew more facts.
David
Your gains, net off all losses, reliefs and annual exemption are added to your income to ascertain the appropriate CGT rate.
So your total income and net gains would have to exceed £42475 prior to the higher 28% rate being chargeable - in all likelihood you would be paying a hybrid rate made up of some taxable @ 18% and the remainder @ 28%.
The question of whether the profit is subject to income tax is not straightforward - its not a simple issue but your motive when buying the property is a starting point.
If you want, PM me as it may be useful to obtain afew more facts.
David
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