capitol gains tax

[Guv10]

Hi,

I know there is google but it's completly confusing me!

My parents have a rental property which they are thinking about selling.

They bought it in 1990 for 60k lived in it until 2014 and then moved out and rented it, it's still being rented now. It's currently worth 400k

I have no idea how it's calculated. Any help would be appriciated.

[Numpty with honours]

Guv10 said:

Hi,

I know there is google but it's completly confusing me!

My parents have a rental property which they are thinking about selling.

They bought it in 1990 for 60k lived in it until 2014 and then moved out and rented it, it's still being rented now. It's currently worth 400k

I have no idea how it's calculated. Any help would be appriciated.

Years of ownership, 32 years

As principal private main residence 24 yrs plus last 1.5 years = 25.5

Gain £340k X (32-25.5) / 32 = £81,250

Your parents would have an annual exemption of £12,300 each £24,600

So tax payable ( assuming no other gains) will be £81,250 less £24,600 = £56,650 @ rates of between 20% and 40%

There are various expenses that csn be claimed in calculating the gain, but from the above if you think say £15k is the tax payable it wont be that far out

Edited by Numpty with honours on Sunday 28th November 21:44

[Guv10]

Thats amazing, thank you.

One question the £56,650, Is that the tax payable or would it be 20% of the £56k (they are basic rate)?

[Bobtherallyfan]

Doesn’t a higher rate tax payer only pay 28% on gains from residential sales?

[Eric Mc]

Guv10 said:

Thats amazing, thank you.

It's also incorrect.

The rates of tax used for the calculation of CGT on the disposal of residential properties are not 20% and 40% - they are 18% and 28%.

Also, your parents need to be aware that CGT has to be reported AND PAID to HMRC within 60 days of the date of disposal of the property. Up until 5 April 2020, CGT was reported purely as part of the submission on a Self Assessment tax return. Since 6 April 2020, the individuals involved need to register with HMRC for the on-line submission (paper not allowed) of the CGT details. Initially the time limit was only 30 days but this has obviously proved to be a bit of a disaster for HMRC because in the recent budget the Chancellor announced that the 30 day window has been extended to 60.

[Burwood]

Eric Mc said:

Guv10 said:

Thats amazing, thank you.

It's also incorrect.

The rates of tax used for the calculation of CGT on the disposal of residential properties are not 20% and 40% - they are 18% and 28%.

Also, your parents need to be aware that CGT has to be reported AND PAID to HMRC within 60 days of the date of disposal of the property. Up until 5 April 2020, CGT was reported purely as part of the submission on a Self Assessment tax return. Since 6 April 2020, the individuals involved need to register with HMRC for the on-line submission (paper not allowed) of the CGT details. Initially the time limit was only 30 days but this has obviously proved to be a bit of a disaster for HMRC because in the recent budget the Chancellor announced that the 30 day window has been extended to 60.

And don't forget, all selling, marketing costs, capital improvement costs, legal fees, title transfer fees. (did they improve the property) plus stamp duty paid when buying it (not relevant as 60k) can all be deducted from the profit.

[Eric Mc]

There are LOTS of issues surrounding a Capital Gains Tax calculation. To do the computation correctly, you also have to know the total of all your other income from other sources as it is your TOTAL income that determines how much of the capital gain falls into the 18% and 28% bands.

As HMRC now expects people to provide a CGT calculation BEFORE they know what their full annual income is going to be, it means that the CGT amount calculation when carrying out the digital submission cannot ever be accurate.

Consequently, it is essential that a revised CGT is submitted AGAIN after the end of the tax year because it is only after the tax year is ended that you can accurately know what your total income from all sources actually is.

[Welshbeef]

Or if they don’t sell it / they will die it will then go into their estate and as such no CGT will be paid rather death tax instead.

Do they simply need the £? If so why not put a BTL mortgage on the property to take the cash out