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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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capital gains tax on disposal of a second property rented out

Resolved Question:

capital gains tax on disposal of a second property rented out since purchase as part of a divorce.
date purchased Oct 2011
value on purchase £100,000
cost of restoration £12,000
cost of survey and legal fees on purchase £2,000 inc VAT
cost of estate agents and legal fees on disposal £3,000 inc VAT
value on disposal £185,000
date of disposal december 2014
marriage date 1996
wife moved out of Main family home june 2013
income for 2014/15 wife £38,000 paye, plus dividends £100,000
income husband 2014/2015 £20,000 paye, £532,000 tapered relief on sale of business shares to wife.
Q1 What is the CGT payable by the wife on disposal
Q2 What is the CGT payable by the husband on disposal
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

Has the property that is being sold been jointly owned since it was bought? Is it a residential property let on short term lets as opposed to a furnished holiday let? Can you tell me what you mean by £532,000 tapered relief on sale of business shares to wife" please. What exactly does the figure of £532,000 represent and how it is arrived at? Is it a gain?

Customer: replied 3 years ago.

the property is residential. Flat bought for letting and has been on long term let since refurbishment.

the £532k is a closed limited company owned by my wife and I. I have 25 of the 100 ordinary shares. The company is going to use it's excess capital to buy me out.

Expert:  TonyTax replied 3 years ago.
Thanks.

Is the figure of £532,000 the gain you will make when you sell your shares or teh disposal proceeds? If the latter, what will be the gain?
Customer: replied 3 years ago.

disposal proceeds. The shares were worth £1 nomjnal value in 1994 when the company distributed the shares.

we have got hmrc clearance in writing on this part already.

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I draft my answer. I'll get back to you in about 30 minutes.
Customer: replied 3 years ago.

ok thanks

Expert:  TonyTax replied 3 years ago.
Hi again.

Capital Gains Tax is charged at 18%, 28% or a combination of the two rates depending on the sum of the taxpayer's income and gains in the relevant tax year. Taper relief was withdrawn for disposals of assets with effect from 6 April 2008.

The gain on the disposal of the let property will be £68,000 (£185,000 - £100,000 - 12,000 - 2,000 - 3,000). That's £34,000 for each of you and your wife.

Q1 The first £11,000 of your wife's share of the gain will be exempt from CGT assuming she has no other gains in the 2014/15 tax year. As she is a higher rate taxpayer, she will pay CGT on £23,000 at 28% which will leave her with a liability of £6,440.00.

Q2 I'm assuming that you will qualify for entrepreneur's relief for the gain you make on the disposal of your company shares which will be around £532,000. You can read about entrepreneurs' relief here.

You are a basic rate income tax payer and if your income is £20,000 for 2014/15, you will have a balance of the sum of the personal allowance and the basic rate tax band of £21,865 (£10,000 + £31,865 - £20,000) which will be absorbed by the £532,000 gain as described under the heading "Working out your Capital Gains Tax for 2013-14" here. Ignore the tax year 2013/14. The important thing is the allocation of the remainder of your basic rate tax band. Your CGT liability will be £53,200.00.

The CGT exemption of £11,000 is used against those gains which are taxable at the highest CGT rate. See under "Using your Annual Exempt Amount" here for confirmation. In your case, this is the £34,000 gain on the let property. You will pay CGT at 28% on £23,000 leaving you with CGT to pay of £6,440.00.

Your combined CGT liabilities for 2014/15 assuming you have no other gains in the same tax year will be £59,640 (£53,200 + £6,440).

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

thank you Tony. Excellent. Very clearly explained

Expert:  TonyTax replied 3 years ago.
Thanks.
Customer: replied 3 years ago.

I am accessing this on a smart phone with a minute screen. Have I pressed all necessary buttons to ensure you are paid?

Expert:  TonyTax replied 3 years ago.

You need to rate my answer by clicking on one of the smiley faces for me to get paid. See below.

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