Capital gains tax on property
Discussion
Heres a theoretical question. I think I'm right in saying that if you make more than £9k on a buy to let property you have to pay some sort of capital gains tax when you sell the property.
But, say someone bought a property for £50k 10 years ago with a £45k mortgage. Some way down the line, the property is worth £90k, and the owner decides to remortage it, so the mortgage is now £85k. The owner then sells for £90k.
So say the owner has spent the remortgaged money. Does he still have to pay a tax when selling, even thought he technically only has £5k profit after paying off the mortage?
But, say someone bought a property for £50k 10 years ago with a £45k mortgage. Some way down the line, the property is worth £90k, and the owner decides to remortage it, so the mortgage is now £85k. The owner then sells for £90k.
So say the owner has spent the remortgaged money. Does he still have to pay a tax when selling, even thought he technically only has £5k profit after paying off the mortage?
The balance owing to the lender is nothing to do with any gain deriving from the sale. The only element of the mortgage that can be offset for tax purposes is the mortgage interest - and that is only offset against rental income, not the disposal proceeds.
The £9,600 allowance is a personal annual allowance against all your gains in any one tax year. Therefore, if you sold three properties and a work of art which generated capital gains of £100,000 in tax year 2007/08, Only one lot of £9,600.00 is offset against the total gains.
If assets are jointly held - or owned by a group of people, the gain is split between the individuals involved and each person can offset their own personal allowance of £9,600.00.
The £9,600 allowance is a personal annual allowance against all your gains in any one tax year. Therefore, if you sold three properties and a work of art which generated capital gains of £100,000 in tax year 2007/08, Only one lot of £9,600.00 is offset against the total gains.
If assets are jointly held - or owned by a group of people, the gain is split between the individuals involved and each person can offset their own personal allowance of £9,600.00.
liner33 said:
I believe there is a sliding scale to cover the gains made over years as in your example of the gain was made over 10 years not all in one year
Taper relief and indexation were abolished from the tax year ended 5 April 2008. From the start of the Tax Year 6 April 2008 all GT taxable gains by individuals (and partnerships and trustees) will be taxed at the flat rate of 18%.topless_mx5 said:
he technically only has £5k profit after paying off the mortage?
£5k profit plus the £35k profit that he took out earlier when he remortgaged of course (along with the original £5k equity). As has been said it will be 18% of the amount above any CGT allowances for that year (double if owned jointly), but you can write off certain improvement costs also and also selling fees etc I think - also if the property was ever lived in by an owner as their main residence then this changes things as well (quite significantly).
Edited by touching cloth on Thursday 15th January 16:26
Just how many BTL owners will have declared this situation to the Inland Revenue or do you have no choice as your BTL mortgage would automatically flag it up?
The guy I bought my house from was buying all sorts in the area, "improving" them and selling on for 25-30k more 3 months later but not as a business - could they be feeling his collar as well?
The guy I bought my house from was buying all sorts in the area, "improving" them and selling on for 25-30k more 3 months later but not as a business - could they be feeling his collar as well?
Wings said:
liner33 said:
I believe there is a sliding scale to cover the gains made over years as in your example of the gain was made over 10 years not all in one year
Taper relief and indexation were abolished from the tax year ended 5 April 2008. From the start of the Tax Year 6 April 2008 all GT taxable gains by individuals (and partnerships and trustees) will be taxed at the flat rate of 18%.liner33 said:
Wings said:
liner33 said:
I believe there is a sliding scale to cover the gains made over years as in your example of the gain was made over 10 years not all in one year
Taper relief and indexation were abolished from the tax year ended 5 April 2008. From the start of the Tax Year 6 April 2008 all GT taxable gains by individuals (and partnerships and trustees) will be taxed at the flat rate of 18%.A high rate tax payer will be better off with the new system, taper relief on non business assets (which btl's are classified as) were still subject to 60% liability even after 10 years taper relief I think, effectively reducing a 40% taxation rate on the profit to 24% taxation rate, i.e. higher than the new 18% flat rate, low rate tax payers will however be worse off.
There is nothing magic about a Buy to Let property compared to any other property. ALL properties are subject to capital gains tax when they are disposed of - with the exception of your Main Residence - which is totally exempt.
What clever people can do is ELECT to decide which of their properties they want to nominate as their Main Residence. There is a certain amount of flexibility within the system to allow this which can be done under an Extra Satutory Concession.
What clever people can do is ELECT to decide which of their properties they want to nominate as their Main Residence. There is a certain amount of flexibility within the system to allow this which can be done under an Extra Satutory Concession.
topless_mx5 said:
touching cloth said:
also if the property was ever lived in by an owner as their main residence then this changes things as well (quite significantly).
How long does the person need to live in the property for?There ARE circumstances where you CAN successfully claim a property was your main residence even if you had NEVER lived there. An example is where an individual buys a house where he/she fully intends to move in. Then, because of work requirements, he/she is posted abroad for a number of years. Then, when the owner returns, for whatever reasons they can't move in and then the property is sold. In most circumstances, the Revenue would allow the CGT exemption to apply to that particular property.
Edited by Eric Mc on Saturday 17th January 09:41
loafer123 said:
I believe the Inland Revenue are cracking down on landlords at the moment. So many use the whole of their mortgage payment as an allowable expense, when they can only actually deduct the interest element that they are an easy target.
Yes, it's called tax fraud.The HMRC crackdown is also intended to net people who own a second home and rent it out but don't declare the rental income for income tax.
Both are easy meat for HMRCs nice big computer. They receive routine reports from all the big banks etc and can just match things up.
loafer123 said:
I believe the Inland Revenue are cracking down on landlords at the moment. So many use the whole of their mortgage payment as an allowable expense, when they can only actually deduct the interest element that they are an easy target.
Am understanding that correctly, ie. the interest element of a mortgage repayment is tax-deductable?Yes, on a Buy to Let, you receive income in the form of rent, and which is taxed as income if held personally.
The tax is paid on net income after interest cost and various deductables like maitenance, but the amortisation element is not a deductable.
As an investment, the Buy To Let, if sold, is subject to CGT.
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