Capital Gains Tax on Second Property

CGT will be liable, sadly.

The gain is declared on the income tax self assessment form, taxed at the marginal rate of income tax and treated as the top slice of income. So that will be 40% then. No NI implications.

Indexation is explained here

There is an "allowance" of £7k or so, which is tax free.

I'm not sure about rolling over the gain into another property - but something deep within me thinks it's unlikely to be possible. It's late, I'm tired, I could be wrong.

MichaelC/NB/Simon Perry may chime in to correct me and to point out some cunning ways to mitigate the CGT liability.

ag

If he's got a partner get it in both names then they benefit from two CGT allowances of around 8k each.

Also take professional advice, or he could ask the tax man for advice - don't know how objective they are though!

Bob

There was an article in the Money section of the Sunday Times last weekend on precisely the subject of reducing the cost of a second home. It's available here online. Basically, your friend needs to declare the house he is about to sell as his main residence.
John

Mike

The principles:

The gain is calculated as the difference between the sale proceeds and the purchase price.

The gain is further reduced by: legal costs on acquisition/disposal; Stamp Duty on purchase; agents' fees on disposal; costs of improvements (NOT repairs); indexation (a sort of inflation allowance).

The gain as calculated above is then reduced on a pro-rata basis for the number of years in which the property was the main residence. So using your example 6/14 or thereabouts of the gain is exempt from Capital Gains Tax. Additionally, as the property was let the last three years of the ownership are exempted so the exemption is actually 9/14 or thereabouts.

The gain as recalculated above can further be reduced by what is known as a let property exemption which is the lower of the chargeable gain or £40,000.

There is an annual exemption - approx £8K. If the property was jointly owned then the gain can be split and two annual exemptions claimed.

If there remains a gain chargeable to Capital Gains Tax this is taxed at the marginal rate ie any remaining basic rate band taxed at 22% and thereafter at 40%. The actual rate of CGT can be reduced by taper relief.

You are welcome to drop me a line or pt me.

Cheers

Mike

Oh, I should mention that there is no rollover relief available because the property is not a business asset.

Mike

Muchachos

Muchos gracias..from My Friend, of course...

Thanks very much for the replies.

Regards

Mike

Spending money I don't have on things I don't need.

Surely if the property is owned by a business and the profit spent on another property within the same tax year?

quote:

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Originally posted by Rasher:
Surely if the property is owned by a business and the profit spent on another property within the same tax year?

---

A residential property is simply not defined as a business asset. So it is irrelevant that the proceeds are re-invested into anything.

Mike

One important point which I don't think has already been mentioned, is that if he lived in it 8 years ago, he gets 3 years after he moved out capital gains tax free.

So it's only the gain on the last 5 years that counts.

edit: actually I think Michael did cover it above.

Morning guys,


One thing not already mentioned is VCT's.

I am not an expert on the subject but I beleive the gain can be rolled over into a VCT. If the VCT is then held for 5 years the gain can be mitigated.

As I said I am not an expert so the above advice needs to be checked out before acting on it.


Regards


NB

Notwithstanding the rules, the VCT option disappears on 5 April so that looks like a non-starter.

Mike

quote:

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Originally posted by MichaelC:
A residential property is simply not defined as a business asset. So it is irrelevant that the proceeds are re-invested into anything.

---

But what about it being a property development company?

Hello,

Nice to hear about VCT? But is everyone out there a disconsolate accountant?

My name is taken from lowest region of the world, a dank, gloomy pit, surrounded by a wall of bronze, and beyond that a three-fold layer of night; it is one of the first entities to exist in the universe; primarily the prison for defeated gods and a place of punishment for sinners-just like my sense of humour!

quote:

---

Originally posted by Rasher:
But what about it being a property development company?

---

Hadn't looked at this thread for a while.

Again, I am sure that you will find that a gain cannot be rolled over by a property development company unless the property in question was used for a trading purpose.

Mike

quote:

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Originally posted by tartarus:
Hello,

Nice to hear about VCT? But is everyone out there a disconsolate accountant?

---

VCTs haven't gone away. Investments in VCTs now attract Incoem Tax relief.

I certainly wouldn't call myself a disconsolate accountant!

Mike

My homework for this bank holiday weekend is to write to a client about the pro's and cons of VCT's, a subject I know little about.

I am a disconsolate accountant.

I own two houses that I rent out in Swindon.

If I sell these two houses to buy another house in Spain which I will rent out over there, do I have to pay CGT.

Regards

Mick

Mick

I am pretty sure you would - the fact is that the sale in the UK is a disposal and has no bearing on your Spanish dealings.

Console yourself by going to see la Brightman

http://www.ticketmaster.co.uk/cgi/asp_events/byid.asp?event_id=1800378BF36EDE56&category=Performing_Arts

Regards

Mike

Spending money I don't have on things I don't need.

Mick,

If I sell these two houses to buy another house in Spain which I will rent out over there, do I have to pay CGT.
_______________________________________________________________

If you have made a gain more than the exemption of £8,200, then you will have to pay CGT. The fact you are investing in a Spanish property is irelevant, as rollover relief is not available for rented property, whether a property management company or not.

Regards


NB

Alex,

If you ever need any help on VCT's then drop me a line!


Regards


NB