CGT on Residential Property
Discussion
A scenario:
CGT is payable on the sale of a second residential property because the gain on the sale exceeds the annual CGT allowance of the owner.
CGT on a second residential property gain is 18% if the individual is taxed at the basic rate of tax on their total taxable income, or 28% if they pay a higher rate of tax.
The property owner is paid a basic rate salary. However, the owner has the potential to receive company dividends, that after personal allowances, would marginally increase their income beyond £50,270, and a higher rate of dividend tax would be paid on a small proportion of the dividend income.
In this case, where they have exceeded £50,270 total income due to dividend payments, are they now classed as a higher rate tax payer for CGT purposes on a residential property gain?
CGT is payable on the sale of a second residential property because the gain on the sale exceeds the annual CGT allowance of the owner.
CGT on a second residential property gain is 18% if the individual is taxed at the basic rate of tax on their total taxable income, or 28% if they pay a higher rate of tax.
The property owner is paid a basic rate salary. However, the owner has the potential to receive company dividends, that after personal allowances, would marginally increase their income beyond £50,270, and a higher rate of dividend tax would be paid on a small proportion of the dividend income.
In this case, where they have exceeded £50,270 total income due to dividend payments, are they now classed as a higher rate tax payer for CGT purposes on a residential property gain?
Essentially Capital Gains are taxed like income but at different rates.
Just because you're a basic rate income tax payer doesn't mean you get lower rate CGT on all of your Capital Gains. Once the combination of taxable income and taxable gains takes you over £37,700 you pay higher rate CGT on all gains above that combined £37,700 level.
Just because you're a basic rate income tax payer doesn't mean you get lower rate CGT on all of your Capital Gains. Once the combination of taxable income and taxable gains takes you over £37,700 you pay higher rate CGT on all gains above that combined £37,700 level.
Does this mean that since the residential property gain is going to be c.£30k and the individual is already a lower rate income tax payer with more than £8k of taxable incomes, that this property gain will automatically push the individual into a higher rate for CGT for that financial year?
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