Capital gains tax
Author
Discussion

Dico

Original Poster:

264 posts

251 months

Friday 28th September 2007
quotequote all
Does anyone have any knowledge of how much (if any) I am likely to be stung by?

I have owned a property for 10 years. I lived in it for the first 5 years, and have rented it out for the last 5 years.
Purchase price was £44,000 and its now worth aproximately £140,000.

I also purchased a 2nd property 5 years ago which I lived in for 6 months, and have let out ever since.

I moved into Mrs Dico's house 4 1/2 years ago (which is in her name), if this has any relevance?

Thanks for any help. Dico

edit- Its the first property which I am planning on selling, and which the question is aimed at.

Edited by Dico on Friday 28th September 18:26

munky

5,328 posts

278 months

Friday 28th September 2007
quotequote all
EricMc is your man for tax. My guess is £19,200 but it's only a guess. Taper relief is the key IIRC.

touching cloth

11,706 posts

269 months

Friday 28th September 2007
quotequote all
If you had it as your main residence then it's free of CGT whilst you lived there and you will also get an additional 3 years CGT free period after the date you moved out. So in effect your CGT liability will only be for the increase in last 2 years so should hopefully be minimal - taper relief may come into play but I am not sure how it works with the 3 years, i.e it may not start until after that period (which would make sense) and 2 years doesn't earn you any taper I don't think.

Ideally you would have had valuations firstly when you moved out (possible that you did if you maybe considered selling as an alternative to renting), but even better 3 years later (unlikely unless you knew about the 3 years CGT ruling); if not then you want to try to get some evidence together as to what the flat may have been worth at that point (use some of the historical house price data) - ideally a nice high figure as you want to minimise the difference between the value then and now.

Edited by touching cloth on Friday 28th September 18:37

Dico

Original Poster:

264 posts

251 months

Friday 28th September 2007
quotequote all
Thanks

And if it was my sister buying it off me and it sold for £130,000 (which is what her property was valued at 2 years ago. She lives next door to this property which is identical), Then in effect there would be nothing to pay! Wink wink.

Mrs Dico's house is on the market currently at a lower price than what it was valued at 2 years ago. So not all property prices have risen in the last 2 years. (same area)

This may work out ok!



Edited by Dico on Friday 28th September 18:52

touching cloth

11,706 posts

269 months

Friday 28th September 2007
quotequote all
Oh and you get to use your personal allowances for the year you are selling as well, curr about £9000, would be surprised if you have very much to pay at all, if any. If you are actually married (Mrs Dico?) then it gets better as you can gift half the house to your wife (free of any tax as intermarriage gifts are free regardless of value) and thus also utilise her allowance as well biggrin

Given all that, I wouldn't try any sneaky tricks, it's worth what it is worth. As I understand it, they can dictate the market rate it should have sold for and use that to value the CGT liabilty, regardless of what the on paper sale price was... also if you attract their suspicion as someone who may like to use tricks to avoid tax on that, you may then find yourself in the middle of a larger tax investigation which you really don't want hehe


Edited by touching cloth on Friday 28th September 19:18

Dico

Original Poster:

264 posts

251 months

Friday 28th September 2007
quotequote all
Heh its moved!

Thanks TC. Yep we're married so that may be to our advanatge as you say.
Thanks again, just trying to get some figures together for a new house purchase. She wont let me have the Porsche... even for a year.

p.s. I didn't class it as buisness, more of a pension.

Edited by Dico on Friday 28th September 19:47


Taxed on a pension! Cr@p innit!?

Edited by Dico on Friday 28th September 19:48

bleesh

1,112 posts

284 months

Friday 28th September 2007
quotequote all
Don't they just look at the increase over the total length of time you've owned the house and divide it by the number of years to get the annual increase?
I don't think they look at the "actual" increase in any given year....

Steve

Eric Mc

125,770 posts

295 months

Friday 28th September 2007
quotequote all
Most of the relevant points have been covered.

Attempting to sell the property at lower than market value is a waste of time. The Revenue have the power to substitute the REAL market value for the actual proceeds if they feel inclined to do. They have their own Valuations Office just for that.

Assets that were owned prior to 5 April 1998 will also be subject to Indexation Relief from the date of purchase up to 5 April 1998 - and Taper Relief after that.

The current Capital Gains allowance is £9,200. If you transferred half the property to your wife - and then sold it, you would BOTH be able to claim the £9,200 each - effectively doubling the tax free element of the gain to £18,400.

Dico

Original Poster:

264 posts

251 months

Friday 28th September 2007
quotequote all
Ta Eric

I'll see a solicitor, but its good to at least have some knowledge.

JD247

47 posts

229 months

Sunday 30th September 2007
quotequote all
Hi. At the risk of stepping on the toes of an established and respected member (Ericmc) and this being my first ever post here on PH I would nevertheless like to offer some input.

Your first 5 ish years of ownership are exempt under principle private residence relief and the FINAL 3 years are automatically exempt, regardless of what the property was used for (lettings included) so you have an approximate 2 year period which will be potentially chargeable to CGT, however you may also be able to get lettings relief. The idea of transferring an asset to your spouse is widely used and can ensure that you have two annual allowances to offset against the gain. Your biggest issue will be determining the change in value over the 2 year period in question, but from the facts given I would say it is quite liekly you could avoid CGT completly.

Before you incur the expense (and often incompetence of the average solicitor, no offence to any good ones on here!) I suggest a quick call to the revenue, they are usually very helpful and there is a specific department that deals with CGT issues. You may also wish to google ir283 which is their factsheet on CGT relating to residential property, this covers principal private residence relief, lettings relief, the three year rule and a few other points of note. Hope this helps.

JD

M400 NBL

3,552 posts

242 months

Sunday 30th September 2007
quotequote all
JD247 said:
Hi. At the risk of stepping on the toes of an established and respected member (Ericmc) and this being my first ever post here on PH I would nevertheless like to offer some input.

Your first 5 ish years of ownership are exempt under principle private residence relief and the FINAL 3 years are automatically exempt, regardless of what the property was used for (lettings included) so you have an approximate 2 year period which will be potentially chargeable to CGT, however you may also be able to get lettings relief. The idea of transferring an asset to your spouse is widely used and can ensure that you have two annual allowances to offset against the gain. Your biggest issue will be determining the change in value over the 2 year period in question, but from the facts given I would say it is quite liekly you could avoid CGT completly.

Before you incur the expense (and often incompetence of the average solicitor, no offence to any good ones on here!) I suggest a quick call to the revenue, they are usually very helpful and there is a specific department that deals with CGT issues. You may also wish to google ir283 which is their factsheet on CGT relating to residential property, this covers principal private residence relief, lettings relief, the three year rule and a few other points of note. Hope this helps.

JD
As well as seeking advice from www.taxationweb.co.uk/forum

If you give all the details necessary, there are experts that will not only give a explaination, but will calculate your CGT very acurately. You needn't join the forum. There are enough example to help calculate it yourself.


Eric Mc

125,770 posts

295 months

Sunday 30th September 2007
quotequote all
No threading on toes at all. The more knowledgeable the information passed on, the better.

CGT matters crop up as queries on a fairly regular basis here on PH and many of the points you have raised have been mentioned before.
Letting relief is often overlooked when making CGT returns and it is a very useful allowance - if it can be claimed.

Dico

Original Poster:

264 posts

251 months

Sunday 30th September 2007
quotequote all
A BIG thank you for all the responce.

Will one of my two properties be exempt from capital gains? I figured one property (the main (?) one) would be free from tax???
And how do they decide which one? The first one you sell I suppose?
I know I need to seek professional advice ultimately,but you chaps seem to know your stuff.
I've lived in both but currently live in my wifes house.

Dico

Eric Mc

125,770 posts

295 months

Sunday 30th September 2007
quotequote all
You can make an election to decide which one is your main residence. The one likely to experience the bigger gain is the one to go for normally.