CGT on a rental property
Discussion
Can someone put in very simple terms how the capital gains tax is worked out, ( if any ), on a BTL, if sold in say, 5 years time.
Are there limits as to when this kicks in, and does it just apply to second properties etc.
I'm sure there will be certain criteria that has to be met either way, but if someone can tell me the basics we can go from there.
Are there limits as to when this kicks in, and does it just apply to second properties etc.
I'm sure there will be certain criteria that has to be met either way, but if someone can tell me the basics we can go from there.
If you bought the house as a rental property and it was never your main residence then you are liable for full CGT (minus your personal annual allowance, £10,600 in this tax year).
If you lived in the property before you let it out then there is a sliding scale of CGT based on how long it is since it was your main residence.you'd need to look this up with HMRC or speak to your accountant.
If you lived in the property before you let it out then there is a sliding scale of CGT based on how long it is since it was your main residence.you'd need to look this up with HMRC or speak to your accountant.
Sale proceeds minus purchase price gives you the basic gain. You are allowed take into account ancilliary costs of purchase and sale such as legal fees, stamp duty etc.
Also, if you incurred major capital costs on the property during your period of ownership (reffered to as Enhancement Expenditure) then you can offset that against the gain too.
An individual receives an annual Capital Gains Tax allowance which is currently £10,600 per person.
If the property is owned jointly, then the gain is split 50:50 between the owners and each will get their £10,600 applied to their share of the gain - which can give some substantial tax savings.
Capital Gains Tax is paid at either 18% or 28%, depending on whether the taxpayer is a Higher Rate Tax payer in the year of disposal.
Also, if you incurred major capital costs on the property during your period of ownership (reffered to as Enhancement Expenditure) then you can offset that against the gain too.
An individual receives an annual Capital Gains Tax allowance which is currently £10,600 per person.
If the property is owned jointly, then the gain is split 50:50 between the owners and each will get their £10,600 applied to their share of the gain - which can give some substantial tax savings.
Capital Gains Tax is paid at either 18% or 28%, depending on whether the taxpayer is a Higher Rate Tax payer in the year of disposal.
You will need to complete a self assessment tax return for the tax year in which the gain occurs. Any tax payable is due by the following 31 January.
So, if the gain occurs in tax year 2012/13, yuou will need to complete a 2012/13 self assessment tax return. Tax arising will be payable by 31 January 2014.
So, if the gain occurs in tax year 2012/13, yuou will need to complete a 2012/13 self assessment tax return. Tax arising will be payable by 31 January 2014.
steve1 said:
Just as I thought.
I will ask, but if you don't fill in the forms what happens, it's just that you hear so many horror stories of people not paying and then getting caught, I am just curious of how this occurs.
If you don't fill in the forms, you have broken the law, Since all property sales are logged at the Land Registry, there is a strong chance you will get caught.I will ask, but if you don't fill in the forms what happens, it's just that you hear so many horror stories of people not paying and then getting caught, I am just curious of how this occurs.
Eric Mc said:
Sale proceeds minus purchase price gives you the basic gain. You are allowed take into account ancilliary costs of purchase and sale such as legal fees, stamp duty etc.
Also, if you incurred major capital costs on the property during your period of ownership (reffered to as Enhancement Expenditure) then you can offset that against the gain too.
An individual receives an annual Capital Gains Tax allowance which is currently £10,600 per person.
If the property is owned jointly, then the gain is split 50:50 between the owners and each will get their £10,600 applied to their share of the gain - which can give some substantial tax savings.
Capital Gains Tax is paid at either 18% or 28%, depending on whether the taxpayer is a Higher Rate Tax payer in the year of disposal.
If owned jointly would the rental income need to be split?Also, if you incurred major capital costs on the property during your period of ownership (reffered to as Enhancement Expenditure) then you can offset that against the gain too.
An individual receives an annual Capital Gains Tax allowance which is currently £10,600 per person.
If the property is owned jointly, then the gain is split 50:50 between the owners and each will get their £10,600 applied to their share of the gain - which can give some substantial tax savings.
Capital Gains Tax is paid at either 18% or 28%, depending on whether the taxpayer is a Higher Rate Tax payer in the year of disposal.
steve1 said:
Eric Mc said:
Yes- if owned jointly, rent should be divided equally between the property owners.
Surely it is down to the owners as to how much each one receives, and therefore how much you are liable for when it comes to taxation.Joint ownership typically means 50/50 unless you can prove otherwise
steve1 said:
Eric Mc said:
Yes- if owned jointly, rent should be divided equally between the property owners.
Surely it is down to the owners as to how much each one receives, and therefore how much you are liable for when it comes to taxation.If one party WANTS to receive less rent than they are legally entritled to, they will need to reduce their ownership of the property by making a legal change to the deeds.
Can't have it both ways - 50:50 for Capital Gains and some other ratio for Income Tax.
Eric Mc said:
Why. If the property is owned l;egally 50:50, then the income belongs to each individual 50:50.
If one party WANTS to receive less rent than they are legally entritled to, they will need to reduce their ownership of the property by making a legal change to the deeds.
Can't have it both ways - 50:50 for Capital Gains and some other ratio for Income Tax.
You tax people don't miss a trick.If one party WANTS to receive less rent than they are legally entritled to, they will need to reduce their ownership of the property by making a legal change to the deeds.
Can't have it both ways - 50:50 for Capital Gains and some other ratio for Income Tax.
Callughan said:
Interesting, I imagine the tenant would pay rent to only one owner then it would be split between owners? Assuming HMRC is ok with this.
That's not that unusual. The tenant isn't usually cocerned to whom they pay the rent - as long as they pay it.Edited by Callughan on Tuesday 26th June 11:57
It's the legal entitlement to the rent that determines who's rent it is.
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