AM I LIABLE FOR CAPITAL GAINS TAX?

AM I LIABLE FOR CAPITAL GAINS TAX?

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I purchased a property in 1986 for 29K with a partner, 2 years later we parted and I now owe 35K on the property. I lived in this house until 1995. I then moved out and purchased a property with my then husband for 75K. I still live in this property although my husband doesnt. I paid him off in 2003 giving him 27K as a settlement. This property is worth approx 230K. The property I first purchased is the one I wish to sell. I have just finished putting in a new bathroom and kitchen and carried out general repairs and maintenance and recarpeted and decorated. The current value of this property is 165/170K. I have been told that I will be liable for 40% CGT - is this true? I was made redundant in June. I am now unemployed and can only claim £56.20 per week job seekers allowance due to having two properties. My intention was to sell the property I purchased in 1986 and clear my mortgage on my current home. Also my home is in desperate need of renovation ie. new roof, windows, heating system etc. I am a single parent and receive no help from the ex or the governement. DO you have any idea what the percentage of CGT I would have to pay? Thanking you.

JO
JO KEMP

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David Winch
By David Winch
26th Sep 2005 16:18

Seek advice from an accountant

Jo

I think you should go and see an accountant about this.

There are numerous factors which might affect the tax payable - and some other factors which will have no effect (even though you might expect that they would).

Relevant facts which you have not provided in your query will include:- (1) When did you buy your ex-partner's share in the property you are now selling and how much did you pay him / her for it, (2) Have you let the property since you moved out of it, (3) How much have you spent on improving the property and when (but excluding routine repairs and maintenance, carpets and decoration). . .

Factors that will NOT be relevant include:- (1) How much you borrowed to buy the property initially and to buy the second half, (2) How much your current home is worth or needs spending on it . . .

It is likely that, in the light of all the relevant information, an accountant can give you a good idea of how much tax you would have to pay on the sale and when the tax would be payable (if you sell before 6 April 2006 the tax will be due on 31 January 2007).

The likelihood is that the tax payable will be considerably less than you fear.

If you do not have an accountant then (1) talk to friends who may be able to recommend someone, or (2) ask your solicitor or bank manager to recommend someone, or (3) click here to go to an online directory of Chartered Accountants (mostly in England and Wales).

I hope this helps.

David

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David Winch
By David Winch
26th Sep 2005 16:38

Alan - one query!

Alan

Did you mean 12/19 taxable or 12/19 exempt from tax?

David

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By ACDWebb
26th Sep 2005 16:32

Yes & no - as David has just beaten me to saying with his post ;
The net assessable gain will be added to your other taxable income and be treated as the top slice to determine tax to be paid.

You lived in the first property for 9 years which will be exempt and have owned it for 19 years. In addition to the 9 years exempt you will get an extra 3 years so roughly 12/19 of any net gain will be [EDIT] exempt [EDIT].

You will need to work out the proportions by months rather than years. I am just making broad assumptions from what you have said in the query.

Did you let the property between 1995 & now? If so there will be an additional exemption available to you to a maximum of £40k

When you separated from your partner did you agree a value for the property at the time and pay him off for that, or had the price not moved much so that you just took over the whole mortgage? That should give you some additional cost to go against proceeds.

There will be indexation allowance for the years 1986 to 1998 which assuming April 1986 as the month of purchase adds another 66.5% of cost on to the amount to be deducted from the sale proceeds.

Thecosts of the new kitchen & bathroom will be further costs to go towards reducing the gain.

There will be taper relief available reducing the amount of gain chargeable to tax by 30%.

There will be the annual CGT exemption, and depending on what your other income is not all of the gain will be assessable at the higher rate.

Frankly there is a lot involved and though it may not be the answer you want you would really be best advised finding a local tax practitioner/accountant to help you sort it all out.

It will add to costs of sale a bit (and will not be an allowable item against the gain) but you stand a better chance of claiming all the reliefs due to you and minimising the tax hit at the outset rather than get into difficulties trying to sort it out yourself

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By ACDWebb
26th Sep 2005 16:41

David - you are quite right!
More haste less speed.

I did mean 12/19 exempt. owned up to the edit!

Or you can look for a Chartered Tax Adviser

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By ACDWebb
04th Oct 2005 10:50

s38 TCGA allows for incidental costs of the sale or acquisition
So if you charge for assisting in the valuation that is a cost of the acquisition or disposal.

Calculation of the gain is not an incidental cost of an acquisition or disposal, but of preparing a personal tax return

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