Captial Gains Tax

Discussion in 'Finance, Property, Law' started by ipaq, Jul 11, 2005.

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  1. Just wondering if anyone can answer my question.

    Bought a house up North two Years ago before my posting. However the posting fell through and myself and the wife ended up down South. As a result we were stuck with a house that we had intended to live in, so we decided to rent it out instead. I'm due posting next Year and we have decided to put the house on the market and buy somewhere near by our next posting, but this time once we are actually there!! My main question is do I have to pay capital gains tax on any profit I have made on the property over the last two Years. This has been my main residence in name for the last two Years and I have only one property in my name.

  2. Simple answer is no you will not have to pay tax, although Gordon and his cronies are looking into it.

    I am in the same situation, my current house on market which I bought last year after selling my other house with 86 grand profit. When you get a solicitor, just run that question by him/her.
  3. Agree with ducati916 that you should run it past a trained ear, however, you can always phone up the local estate agents and they can tell you for free or at least point you in the right direction before putting your hand in your pocket.

    You say that the other property is not your main residence and has been rented out. It may therefore be classed as a business asset as not your main abode for tax purposes.

    Agree that capital appreciation is not currently taxable but as ducati916 points out, you will need to look into your status very carefully as you have received an income from the other house. The good news is that you can offset some of your costs against CGT. Hope it all goes well for you.
  4. Cheers for the swift replies everyone. The rent I get from the tenant is just over the monthly mortgage payments so I don't really make any profit at all from it. Infact I have probably made a small loss with all of the fittings and fixtures we put in not to mention the insurances. I have been told that if you make less than £2700 a Year in rent you do not have to declare it to the inland revenue, is this the case?
    This takes me onto my main point if I have made no profit from the property through rent and it is my only house, surely I can not get stung for this tax!! Any further comments appreciated, like you say don't fancy giving Gordon B and old Tony a big slice of my future
  5. You do not (today) pay CGT on your first home- I think it implies you must have lived in it but check with those who know.

    Will now submit a new thread re Army rights.
  6. BiscuitsAB

    BiscuitsAB LE Moderator

    The Proceeds from the sale of your Primary residence are not subject to CGT. if the Accomodation you are living in currently is rented then you could argue that your own property is your Primary residence. If the Capital Taxes Office accept this line of argument, then your Tax bill will be £0.00.

    If however they argue that it was a "buy to let" purchase then they will ask you for 40% of the Gain that have made, you are of course entitled to offset some of the gain using your CGT allowance which for the tax year 2005/2006 is £8500, also remember both you and your wife each have an allowance.

    If your own property is not currently your Primary residence you can Elect to make it so. If you do this you should be able to remove the last three years of ownership from the CGT calculation. Which will mean that if you have owned the property for less than 3 year the liability should be £0.00.

    As for for Tax on rental income. If you let out property you can deduct certain expenses and tax allowances from your rental income to work out your taxable profit (or loss).
    The expenses you can deduct from letting income (unless it’s under the Rent a Room scheme) include:

    letting agent’s fees
    legal fees for lets of a year or less, or for renewing a lease for less than 50 years
    accountant’s fees
    buildings and contents insurance
    interest on property loans
    maintenance and repairs (but not improvements)
    utility bills (like gas, water, electricity)
    rent, ground rent, service charges
    Council Tax
    services you pay for, like cleaning or gardening
    other direct costs of letting the property, like phone calls, stationery, advertising
    If your annual income from the letting is less than £15,000 (before you’ve taken off expenses) you include the total expenses on your tax return; if it’s £15,000 or over you need to provide a breakdown.

    Bear in mind that you can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it.

    When you work out your profit, you can’t deduct:

    ‘capital’ costs, like furniture or the property itself
    personal expenses – costs that aren’t to do with your letting business
    any loss you make when you sell the property
    But you may be able to claim some allowances instead.

    There are different types of allowance you may be able to claim for your capital costs. Capital costs include expenditure you make on assets like furniture and machinery. The allowances you can claim for some of your capital costs vary according to the type of letting.

    UK and overseas furnished residential lettings
    For furniture and equipment provided with a furnished residential letting (excluding UK furnished holiday lettings) you can claim a 'wear and tear' allowance. The allowance is 10 per cent of the 'net rent' - this being the rent received less any costs you pay that a tenant would usually pay.

    As an alternative to the wear and tear allowance, you can claim a 'renewals' allowance. This covers the cost of replacing furniture or equipment, including small items like cutlery. To work it out, take the cost of the replacement item and deduct from it:

    the amount you sold the old one for (if you got anything for it)
    anything extra you paid for a better one
    Once you've chosen which of these allowances to claim for a property, you can't switch between them from year to year.

    As for how you pay the Tax.

    If you're employed, and your taxable income from property letting is less than £2,500, your Pay As You Earn (PAYE) tax code can be adjusted to collect the tax on your property income each year. Just ask your Tax Office to send you form P810 to report your income each year. Contact details for your Tax Office are on your payslips or you can find them online, or even the Regimental pay office. Anymore than that and you will have to complete a self assesment tax form.

    Now as for getting advice on this, Estate agents know jack shit. Solicitors know even less. If you are letting through a lettings agency they may be able to help, if not an Accountant will or (and) an Independant Financial Advisor. Bear in mind the last two will charge you a fee for their time. So why not approach your Tax Office directly they will be able to offer you guidence, if you get stuck however let me know and I'll help out.