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TaxRobin
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15437
Experience:  International tax
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Hello. I was wondering if you could help with my query. I

Customer Question

Hello. I was wondering if you could help with my query.
I own a flat which was formerly my primary place of residence. The flat was purchased in 1993 and I lived there until 2004 and has since been let out. The flat is technically solely in my name, however I married in 2004 and my now husband lived with me in the flat for one year before we moved on. Looking at current property prices in the area, I believe that my flat will be worth circa £400k though I've not confirmed this with an estate agent yet. The mortgage on the property is for £174k and is an interest only mortgage as the rental from the property is not sufficient for me to move to a repayment mortgage.
I currently live in a house which I jointly own with my husband. Our mortgage is for c£300k. We pay c£1700 per month and are desperate to reduce our costs as our income is massively overstretched.
Looking at this in the abstract There appears to be around £225k equity in the flat that I own and the obvious thing would seem to be to sell that and reduce our mortgage accordingly. I'm aware that we'd have some kind of penalty for early repayment of whatever we were able to pay off.
However I'm also a higher rate (40%) tax payer, as is my husband, so presumably we would loose quite a lot of the 'income' in tax, but I'm unclear how much, or how to find out properly so that we can make a sensible judgement about what to do.
Please could you advise?
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello,
Yes if you sell the flat you may have capital gains to pay. You can use your Annual Exempt Amount against the gains charged at the highest rates to minimise the tax you owe. For individuals that is £11,000.
The following Capital Gains Tax rates apply:
18% and 28% tax rates for individuals (the tax rate you use depends on the total amount of your taxable income, so you need to work this out first )
28% for trustees or for personal representatives of someone who has died
10% for gains qualifying for Entrepreneurs' Relief
The following formula is to be used to work out your total taxable income before working out which Capital Gains Tax rate to use.
First work out your taxable income by deducting any tax-free allowances and reliefs that you are entitled to.
Next see how much of your basic rate band is already being used against your taxable income. The basic rate band for 2013-14 is £32,010.
Allocate any remaining basic rate band first against gains that qualify for Entrepreneurs' Relief - these are charged at 10%.
Next allocate any remaining basic rate band against your other gains, these are charged at 18%.
Any remaining gains above the basic rate band are charged at 28%.
Use your Annual Exempt Amount against the gains charged at the highest rates to minimise the tax you owe.
Here is the url of a site that you can use to calculate your true gain and the tax:

http://www.invidion.co.uk/capital_gains_tax_calculator.php

You will have to copy and paste that address in your address bar as the system is not allowing me to access the link application (sorry).
I sincerely all works out to your advantage as reducing your mortgage would certainly assist you.
Expert:  TaxRobin replied 2 years ago.
JACUSTOMER-p6h2vclx- Last Viewed on 28/08/2014 at 16:24

Hi Claire,
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