Discussion
Hi there
About 12 years ago I bought a flat, as I was planning a big building project on my house and wanted somewhere to live while this took place. In the end, I never did the work on the house, so rented the flat out without having ever lived in it. Currently it is valued at 60k more than I paid for it.
We sold our house last year and have been living in the flat for over a year now, and are. now preparing to emigrate. Hence the flat is now for sale, but I am unsure of where we stand from a tax point of view.
Can anyone advise me the position with Capital Gains Tax on the flat? Do I have to pay CGT on the 60k, or is it now considered to be my primary residence?
Any help much appreciated
Regards
Keith
About 12 years ago I bought a flat, as I was planning a big building project on my house and wanted somewhere to live while this took place. In the end, I never did the work on the house, so rented the flat out without having ever lived in it. Currently it is valued at 60k more than I paid for it.
We sold our house last year and have been living in the flat for over a year now, and are. now preparing to emigrate. Hence the flat is now for sale, but I am unsure of where we stand from a tax point of view.
Can anyone advise me the position with Capital Gains Tax on the flat? Do I have to pay CGT on the 60k, or is it now considered to be my primary residence?
Any help much appreciated
Regards
Keith
You have to pay CGT on the proportion of the gain that was made whilst it wasn't your primary residence. If you pay it in this tax year you will also get 9 months residence tax relief in addition.
You have to pay it within 30 days of the sale completion, but its easy to do on-line - Mrs T and I have just done this as we sold our last BTL in September.
You have to pay it within 30 days of the sale completion, but its easy to do on-line - Mrs T and I have just done this as we sold our last BTL in September.
The pay within 30 days is fraught with dange though. To calculate CGT you have to calculate your entire income for the tax year in which the gain arises. CGT is not a "stand alone" tax. The amount pf CGT you end up paying is dependent on all your other income from all sources - that includes rental income, salary, trading income, interest, other capital gains etc. Previously, you pulled all this information together when completing your Self Assessment tax return - AFTER the tax year had ended and you had all the correct information to hand.
With this new 30 requirement to calculate and pay CGT, you need to ESTIMATE all the non CGT related income up to 5 April 2021 and factor this into the calculation. This will ensure that your calculation will not be 100% accurate. HMRC does not care, they just want your cash now - whether the amount is right or wrong.
To finalise the situation and correct for the built in errors in the system, you will still have to complete a 2020/21 Self Assessment tax return and then seek a tax refund or pay any understated amounts. You will still need to complete the 2020/21 tax return even if you are no longer living in the UK.
With this new 30 requirement to calculate and pay CGT, you need to ESTIMATE all the non CGT related income up to 5 April 2021 and factor this into the calculation. This will ensure that your calculation will not be 100% accurate. HMRC does not care, they just want your cash now - whether the amount is right or wrong.
To finalise the situation and correct for the built in errors in the system, you will still have to complete a 2020/21 Self Assessment tax return and then seek a tax refund or pay any understated amounts. You will still need to complete the 2020/21 tax return even if you are no longer living in the UK.
Not quite sure what 'dange' is, but yes you have to estimate your income for the whole tax year when submitting the 30 day CGT return. The only issue is if you are close to the 40% tax bracket and either over or underestimate your income such that the amount of CGT changes at end of year.
This didn't affect me, but if my income was close to that boundary, I would 'estimate' it (ahem!) to be under the 40% bracket such that I owed HMRC rather than them owing me at the end of year.
This didn't affect me, but if my income was close to that boundary, I would 'estimate' it (ahem!) to be under the 40% bracket such that I owed HMRC rather than them owing me at the end of year.
Calculate the gain as selling price less purchase price less expenses (both buying and selling).
Calculate how many months you're owned it (Excel spreadsheet function!).
Divide the gain by the number of months owned; gives you gain per month.
Calculate how many months it was let and multiply by the monthly gain.
Subtract 9 more months of gain for the bonus residence relief (only if this tax year!)
Subtract your personal CGT allowance (£12300 for this year) if its available. Note you can elect which gain you use the allowance against, but its most logical to use against a property gain as the rates are higher.
The CGT is either 18% or 40% of the result depending on your income tax rate - although the HMRC website does this bit for you.
I hope I'm not teaching you to suck eggs!
If you post up the dates and prices etc, I'm happy to do the calc on my spreadsheet.
Calculate how many months you're owned it (Excel spreadsheet function!).
Divide the gain by the number of months owned; gives you gain per month.
Calculate how many months it was let and multiply by the monthly gain.
Subtract 9 more months of gain for the bonus residence relief (only if this tax year!)
Subtract your personal CGT allowance (£12300 for this year) if its available. Note you can elect which gain you use the allowance against, but its most logical to use against a property gain as the rates are higher.
The CGT is either 18% or 40% of the result depending on your income tax rate - although the HMRC website does this bit for you.
I hope I'm not teaching you to suck eggs!
If you post up the dates and prices etc, I'm happy to do the calc on my spreadsheet.
Edited by timbo999 on Monday 19th October 16:55
Edited by timbo999 on Monday 19th October 17:19
timbo999 said:
Calculate the gain as selling price less purchase price less expenses (both buying and selling).
Calculate how many months you're owned it (Excel spreadsheet function!).
Divide the gain by the number of months owned; gives you gain per month.
Calculate how many months it was let and multiply by the monthly gain.
Subtract 9 more months of gain for the bonus residence relief (only if this tax year!)
Subtract your personal CGT allowance (£12300 for this year) if its available. Note you can elect which gain you use the allowance against, but its most logical to use against a property gain as the rates are higher.
The CGT is either 18% or 40% of the result depending on your income tax rate - although the HMRC website does this bit for you.
I hope I'm not teaching you to suck eggs!
If you post up the dates and prices etc, I'm happy to do the calc on my spreadsheet.
Thanks for that!Calculate how many months you're owned it (Excel spreadsheet function!).
Divide the gain by the number of months owned; gives you gain per month.
Calculate how many months it was let and multiply by the monthly gain.
Subtract 9 more months of gain for the bonus residence relief (only if this tax year!)
Subtract your personal CGT allowance (£12300 for this year) if its available. Note you can elect which gain you use the allowance against, but its most logical to use against a property gain as the rates are higher.
The CGT is either 18% or 40% of the result depending on your income tax rate - although the HMRC website does this bit for you.
I hope I'm not teaching you to suck eggs!
If you post up the dates and prices etc, I'm happy to do the calc on my spreadsheet.
I might take you up on the offer!!
(defo not teaching me to suck eggs!)
timbo999 said:
Not quite sure what 'dange' is, but yes you have to estimate your income for the whole tax year when submitting the 30 day CGT return. The only issue is if you are close to the 40% tax bracket and either over or underestimate your income such that the amount of CGT changes at end of year.
This didn't affect me, but if my income was close to that boundary, I would 'estimate' it (ahem!) to be under the 40% bracket such that I owed HMRC rather than them owing me at the end of year.
"Danger". This didn't affect me, but if my income was close to that boundary, I would 'estimate' it (ahem!) to be under the 40% bracket such that I owed HMRC rather than them owing me at the end of year.
People with relatively simple tax affairs (apart from the CGT) should be able to get a decent approximation of the correct CGT to pay.
However, if you have unpredictable income, such as self employed income, dividend income, rental income from other properties - or even another CGT - then there is a good chance that the initial calculation will be quite a bit out.
Eric Mc said:
"Danger".
People with relatively simple tax affairs (apart from the CGT) should be able to get a decent approximation of the correct CGT to pay.
However, if you have unpredictable income, such as self employed income, dividend income, rental income from other properties - or even another CGT - then there is a good chance that the initial calculation will be quite a bit out.
There are two rates of CGT on property, 18% for lower rate tax payers, and 28% for higher rate tax payers. So the most it can be out is 10%?People with relatively simple tax affairs (apart from the CGT) should be able to get a decent approximation of the correct CGT to pay.
However, if you have unpredictable income, such as self employed income, dividend income, rental income from other properties - or even another CGT - then there is a good chance that the initial calculation will be quite a bit out.
And most people (even in the situation you describe...) surely can determine which tax bracket they fall into? What am I missing?
I'm not on anybody's 'side' and I agree 30 days is difficult to meet, but I can't agree its 'fraught with danger'. Embarrassing for you as a tax professional? Maybe.
Thinking about it, if there is a substantial gain (or even a subdtantial one...) aren't they automatically in the higher tax bracket as the gain is included in their income. So no 10% error should occur as you know their rate will be 28% and thus no embarrassment... unless, of course, your spreadsheet is wrong!
Thinking about it, if there is a substantial gain (or even a subdtantial one...) aren't they automatically in the higher tax bracket as the gain is included in their income. So no 10% error should occur as you know their rate will be 28% and thus no embarrassment... unless, of course, your spreadsheet is wrong!
Edited by timbo999 on Tuesday 20th October 09:09
Edited by timbo999 on Tuesday 20th October 09:10
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