Sense check on CGT and removal of lettings relief
Discussion
Morning All,
We currently have our old house rented out and the tenants are moving on in a few months time. We're reviewing whether to keep the house rented out or sell on. For some reason the removal of the lettings relief in 2020 has slipped past me, so i'd appreciate a sense check on my basic calcs as to help me decide what to do. Here's where we're up to:
Would anyone mind casting a quick eye over these? Obviousy this will change over the next few months as it'll likely be November before we'd complete any sale.
In terms of deductions, am i right in that we can deduct the original stamp duty paid when buying in 2007, original solicitors fees from 2007, plus then any solicitors and estate agent fees when selling up now?
We currently have our old house rented out and the tenants are moving on in a few months time. We're reviewing whether to keep the house rented out or sell on. For some reason the removal of the lettings relief in 2020 has slipped past me, so i'd appreciate a sense check on my basic calcs as to help me decide what to do. Here's where we're up to:
Would anyone mind casting a quick eye over these? Obviousy this will change over the next few months as it'll likely be November before we'd complete any sale.
In terms of deductions, am i right in that we can deduct the original stamp duty paid when buying in 2007, original solicitors fees from 2007, plus then any solicitors and estate agent fees when selling up now?
It's a fair point Eric and the simple answer is i don't have an accountant at the moment. We've used one in the past for advice, but i do my own returns etc.
Based on my old workings, the figures always stacked up very clearly in favour of keeping the BTL going, so i hadn't needed to consult one. Now that the lettings relief has been removed, it's a bit more muddy so certainly maybe the next stage now is to review with a professional.
I guess i'm after some general advice on here first to make sure i've not forgetten anything obvious. At that stage then i'd go a local accountant to review.
Based on my old workings, the figures always stacked up very clearly in favour of keeping the BTL going, so i hadn't needed to consult one. Now that the lettings relief has been removed, it's a bit more muddy so certainly maybe the next stage now is to review with a professional.
I guess i'm after some general advice on here first to make sure i've not forgetten anything obvious. At that stage then i'd go a local accountant to review.
Is there a calculator on HMRC website.
Used it in past but lettings relief didn't apply so may not be what you need.
Did similar calculation for my BTL and with unused capital loses from previous property unlike to be any CGT tax payable at current value but a big chunk(for me) of inheritance tax so transferred part of to children (only same as selling at current market price) and just need to live for another 7 years to get out of my estate valuation.
Don't like making decisions base on tax law because as soon as you have done it the buggers go and chance the rules but 40% IHT on above £500k is a massive chunk. which I'd rather give to beneficiaries I decide on than to HM government.
Used it in past but lettings relief didn't apply so may not be what you need.
Did similar calculation for my BTL and with unused capital loses from previous property unlike to be any CGT tax payable at current value but a big chunk(for me) of inheritance tax so transferred part of to children (only same as selling at current market price) and just need to live for another 7 years to get out of my estate valuation.
Don't like making decisions base on tax law because as soon as you have done it the buggers go and chance the rules but 40% IHT on above £500k is a massive chunk. which I'd rather give to beneficiaries I decide on than to HM government.
MrChips said:
It's a fair point Eric and the simple answer is i don't have an accountant at the moment. We've used one in the past for advice, but i do my own returns etc.
Based on my old workings, the figures always stacked up very clearly in favour of keeping the BTL going, so i hadn't needed to consult one. Now that the lettings relief has been removed, it's a bit more muddy so certainly maybe the next stage now is to review with a professional.
I guess i'm after some general advice on here first to make sure i've not forgetten anything obvious. At that stage then i'd go a local accountant to review.
And don't forget the new 30 day time limit for filing the CGT details on line and paying the CGT arising.Based on my old workings, the figures always stacked up very clearly in favour of keeping the BTL going, so i hadn't needed to consult one. Now that the lettings relief has been removed, it's a bit more muddy so certainly maybe the next stage now is to review with a professional.
I guess i'm after some general advice on here first to make sure i've not forgetten anything obvious. At that stage then i'd go a local accountant to review.
And also the fact that you will also have to include the CGT calculations again when you submit your self assessment tax return later.
I am happy to give free advice on tax and accounting principles - and I do on PH, quite often. But one thing I won't do is check people's calculations or knowledge of a tax. That is what I do for a living and I don't think it is fair to expect people who work as practising accountants to provide their knowledge and skills for nothing.
If some other person wants to oblige, that is their choice.
If some other person wants to oblige, that is their choice.
Eric Mc said:
And also the fact that you will also have to include the CGT calculations again when you submit your self assessment tax return later.
That's an interesting one.Does it mean, for example, that someone who's 100% in PAYE employment and sells their second home with a gain of, say, £30k (their only gain in the year) will need to start filing Self Assessment despite having already reported the transaction and paid the tax?
And presumably the same applies even if there's no gain since proceeds of sale in excess of £49,200 trigger the CGT reporting requirement?
Eric Mc said:
I am happy to give free advice on tax and accounting principles - and I do on PH, quite often. But one thing I won't do is check people's calculations or knowledge of a tax. That is what I do for a living and I don't think it is fair to expect people who work as practising accountants to provide their knowledge and skills for nothing.
If some other person wants to oblige, that is their choice.
That makes sense.If some other person wants to oblige, that is their choice.
I guess maybe my original post gives more detail than many would normally share, so could I maybe ask for some advice in a more generic sense?
Is it the case that I can deduct the original stamp duty and original solicitors fees even though at that stage I was buying it as a main residence?
Thank you
rockin said:
That's an interesting one.
Does it mean, for example, that someone who's 100% in PAYE employment and sells their second home with a gain of, say, £30k (their only gain in the year) will need to start filing Self Assessment despite having already reported the transaction and paid the tax?
And presumably the same applies even if there's no gain since proceeds of sale in excess of £49,200 trigger the CGT reporting requirement?
The problem with CGT is that it is not a "stand alone" calculation. The bands and rates that apply to the CGT calculation are dependent on the other income the tax payer has in the tax year in which the gain arose. Obviously, this can only be known with 100% accuracy once the tax year has actually ended. Once the 5 April date has passed, the taxpayer can look back at the tax year that has just ended and work out their correct gross income from all sources and the tax deducted at source on that income. It is only then that they can accurately calculate their true overall tax liability (including any Capital Gains Tax element).Does it mean, for example, that someone who's 100% in PAYE employment and sells their second home with a gain of, say, £30k (their only gain in the year) will need to start filing Self Assessment despite having already reported the transaction and paid the tax?
And presumably the same applies even if there's no gain since proceeds of sale in excess of £49,200 trigger the CGT reporting requirement?
This new rule forces tax payers to calculate their CGT liability BEFORE they have a true idea as to what their correct taxable income for the relevant tax year is actually going to be. The earlier in the tax year the CGT event happens, the more inaccurate the CGT liability is likely to be.
If a taxpayer already submits self assessment tax returns, then they can wait until the tax year is over and submit their self assessment tax return in the normal way and the overall self assessment tax calculation will correct any over or under liabilities calculated in the earlier CGT calculation calculated under the "30 Day Submission Rule".
If the tax payer does not normally complete self assessment tax returns, one solution is to contact HMRC and ask to complete a self assessment tax return in order to submit an accurate CGT calculation after the tax year has ended. This is the procedure that would have been adopted anyway up to tax year 2019/20.
If the taxpayer does not want to complete a self assessment tax return, they will need to contact HMRC either by phone or through their Tax Account and correct the CGT calculation after the end of the tax year.
Note that the 30 days starts running from the date of exchange of contracts on the property disposal, not the date of completion.
Note also that the new rules apply to the sale or disposal of residential properties only. Capital gains on the disposal of other types of land and property are still carried out the "old fashioned way" under the self assessment system .
Accountants, what do they know?
MrChips said:
That makes sense.
I guess maybe my original post gives more detail than many would normally share, so could I maybe ask for some advice in a more generic sense?
Is it the case that I can deduct the original stamp duty and original solicitors fees even though at that stage I was buying it as a main residence?
Thank you
Stamp duty and legal fees incurred when the property was originally purchased can be added to the original cost of the property for Capital Gains Tax purposes.I guess maybe my original post gives more detail than many would normally share, so could I maybe ask for some advice in a more generic sense?
Is it the case that I can deduct the original stamp duty and original solicitors fees even though at that stage I was buying it as a main residence?
Thank you
Enhancement costs incurred by the property owner during the period of ownership of the property can also be added to the original cost when arriving at the base cost for Capital Gains Tax purposes.
Eric Mc said:
The problem with CGT is that it is not a "stand alone" calculation. The bands and rates that apply to the CGT calculation are dependent on the other income the tax payer has in the tax year in which the gain arose.
Aha! Good stuff. I tend to forget second home owners and the BTL crew could be 20% taxpayers, depending on overall circumstances. Yes - and in some cases their non CGT income may be variable - especially if they are self employed or have substantial investment income - so the CGT calculation made at the 30 day submission deadline may be substantially different to the true liability once the full income levels for the year are known.
Substantial corrections will need to be made by many people.
Substantial corrections will need to be made by many people.
At the moment, I am dealing with a perfect example of why this new "30 day submission of CGT" time limit it so ludicrous.
A client of mine sold a rental property at the end of April 2020 - therefore the gain and the related tax arising needed to be returned and paid within the 30 day window (although HMRC deferred the 30 day to 30 June because of Covid 19).
As the property sale occurred very early on in the 2020/21 tax year, we had to estimate the client's other income up to 5 April 2021.
Using the actual gain figures and the estimated "other income" amounts, it was calculated that the CGT payable was in the order of £23,000 - which was duly paid.
Sadly, on 10 July, my client died. Reviewing the true amounts of income for tax year 2020/21, the recalculated tax situation is that my client has overpaid tax by almost £4,000 - which means his widow will be waiting for the repayment of this for goodness knows how long before it is refunded,.
A client of mine sold a rental property at the end of April 2020 - therefore the gain and the related tax arising needed to be returned and paid within the 30 day window (although HMRC deferred the 30 day to 30 June because of Covid 19).
As the property sale occurred very early on in the 2020/21 tax year, we had to estimate the client's other income up to 5 April 2021.
Using the actual gain figures and the estimated "other income" amounts, it was calculated that the CGT payable was in the order of £23,000 - which was duly paid.
Sadly, on 10 July, my client died. Reviewing the true amounts of income for tax year 2020/21, the recalculated tax situation is that my client has overpaid tax by almost £4,000 - which means his widow will be waiting for the repayment of this for goodness knows how long before it is refunded,.
I’ve just done the CGT for property.
The website isn’t even set up for it properly.
You get to it via search and clicking two links deep from the main article, and then you ideally want to be logged in pre clicking the link.
And despite best efforts, getting the account setup, the documentary info for earnings guesstimated, funds from sale ‘safe’ into appropriate accounts, accountant doing return, then send funds across, was pretty much 30 days (1 day late for funds clearing but no issues it seems)
What a pain.
Their system needs finishing/integrating into main account page.
Also could do with 30 day filing and then 15 to pay so you get change to organise funds once you know what you owe.
And then it needs adding to my return next year for 20/21, and adjustments made.
It’s a real ball ache even in good circumstances.
The website isn’t even set up for it properly.
You get to it via search and clicking two links deep from the main article, and then you ideally want to be logged in pre clicking the link.
And despite best efforts, getting the account setup, the documentary info for earnings guesstimated, funds from sale ‘safe’ into appropriate accounts, accountant doing return, then send funds across, was pretty much 30 days (1 day late for funds clearing but no issues it seems)
What a pain.
Their system needs finishing/integrating into main account page.
Also could do with 30 day filing and then 15 to pay so you get change to organise funds once you know what you owe.
And then it needs adding to my return next year for 20/21, and adjustments made.
It’s a real ball ache even in good circumstances.
Bolting on "real time" requirements to a system that fundamentally only works properly with historic data is a typical numbskull idea.
It has taken me two or three days to sort out this deceased person's CGT when I could have done it, properly and correctly first time, if they had stuck to the old system.
It has taken me two or three days to sort out this deceased person's CGT when I could have done it, properly and correctly first time, if they had stuck to the old system.
I’m almost glad this popped up as having decided to keep the place, now the new tenants are in it’s reminded me what a ball ache it is dealing with obscure questions from fussy tenants.
I’ve no doubt that the likely changes to cgt will affect us almost as much as the removal of letting relief but we’re getting decent rent and was overwhelmed with prospective tenants so we’ll stick for a couple of years more and see how we go.
I’ve no doubt that the likely changes to cgt will affect us almost as much as the removal of letting relief but we’re getting decent rent and was overwhelmed with prospective tenants so we’ll stick for a couple of years more and see how we go.
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