Mortgage Repayment Sale of Property

Mortgage Repayment Sale of Property

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Hello,

Apologies for the questions but I am having a really dumb January panic moment.

Client has just sent details of rental property sold in 13/14 and is including the cost of repaying the mortgage as a cost against the capital gain, so for example property bought for £100k, £50k interest only mortgage, sold for £200k. They are stating their gain is £50K as this is the money physically received but surely it is £100K.

Thank you for any help with a sanity check - I work on my own and just need to confirm what I know or have I missed something obvious.

 

Replies (4)

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Stepurhan
By stepurhan
27th Jan 2015 11:55

No loan deduction

It's repayment of finance, not an expense. The gain on the property is £100k.

If the client queries it, ask them if they paid tax on the £50k "income" they originally received when they bought the property. (I hope not, since it's no more taxable income than the repayment is a deductible expense)

Thanks (1)
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By User deleted
27th Jan 2015 12:00

(In)sanity check

The mortgage has nothing to do with the calculation of the gain. Or if they insist, put this to them:

If they want to reflect only the cash that they physically received then they should reflect only the cash that they physically paid - cash received £150k less cash paid £50k = gain of £100k. Bingo, Quite incorrect, of course, but it may help them to see why they are being stupid.

EDIT - Stepurhan's suggest should work just as well.

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By HASXX
27th Jan 2015 12:50

Thank you everyone - it's one of those massive self doubt moments I was having along with having to go back to the client this close to the deadline and advise them of a very large tax bill (they sold 2 properties at higher gains than my example!)

Thanks (0)
Replying to Wanderer:
Stepurhan
By stepurhan
28th Jan 2015 09:00

Deadline worry

HASXX wrote:
Thank you everyone - it's one of those massive self doubt moments I was having along with having to go back to the client this close to the deadline and advise them of a very large tax bill (they sold 2 properties at higher gains than my example!)
I fully understand not wanting to tell a client they have a huge tax bill this close to it being due. Just remind yourself that you would have told them earlier if they'd given you the information earlier. It's their fault they are finding out so late, not yours.
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