CGT Tax query

CGT Tax query

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Advice please on a case where a man and wife bought a house to rent out in 1999 for £25K, with the aid of an interest only mortgage of £20k, in the wife's name. They now wish to sell, and may expect about £75k for it.
Questions.
1. Am I right in thinking that neither taper relief nor indexation is now allowable ?
2. Are joint capital gain allowances applicable, or will the house have to be put in both names
3. Assuming about £2k was spent in improvements, what is the likely CGT calculation.
4. Is there any way of mitigating the CGT charge.

Bernard
Bernard Potter

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By Paul Soper
13th Mar 2006 14:57

Yes and No
Answers:
1. Am I right in thinking that neither taper relief nor indexation is now allowable ? Yes you are right in thinking that indexation is not available - that stopped in 1998. Taper relief will be available - 20 to 25% depending on the exact dates of acquisition and sale.
2. Are joint capital gain allowances applicable, or will the house have to be put in both names - The house would have to be jointly owned to benefit from two allowances, although given the low value there are no Stamp Duty Land Tax disadvantages of entering into such an arrangement
3. Assuming about £2k was spent in improvements, what is the likely CGT calculation. Assuming transferred into joint ownership £75000 - £27000 = £48,000 - ie £24,000 each minus CGT allowance (probably at next year's rate if the sale is after 5 April) each and the gain is then charged at the taxpayer's marginal rate.
4. Is there any way of mitigating the CGT charge. Other than transferring into joint ownership no - however as the property was put into the wife's name I'd guess that this was becuase she was liable at a lower rate than the husband - in this case 50:50 joint ownership might not be the most effective strategy - use a fractional share to maximise the gain in her hands up to the higher rate threshold.

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