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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have inherited a house valued at £70.000. If I sell it after

Customer Question

I have inherited a house valued at £70.000. If I sell it after improvement at an approx. £140.000 how much CGT will I pay. I am a basic rate tax payer?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

Can you tell me how much the improvements will cost and how much your annual income is please.

Customer: replied 2 years ago.

Around £15.000 in improvements - my annual income is over £40.000 but my civil partner takes only a salary of £9000 pa from his business. Pse advise.

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I do some calculations and draft my answer.
Expert:  TonyTax replied 2 years ago.
Hi again.

I've assumed that the property will not be your main home during your ownership of it.

If you sell the property in 2015/16 for £140,000, you will make a gain of £55,000 (£140,000 - £70,000 probate value - £15,000 improvement costs). The first £11,100 of gains you make in the 2015/16 tax year will be tax free so assuming you have no other gains, you will be left with a net taxable gain of £43,900.

There are two rates of Capital Gains Tax, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of the sum of your income and the net taxable gain. One of the following scenarios will apply if you sell the property in 2015/16:

1 If the sum of your income and the net taxable gain is £42,385 or less, you will pay CGT at 18% on the net taxable gain.

2 If your income alone is £42,385 or more, you will pay CGT at 28% on the net taxable gain.

3 If your income alone is less than £42,385 but the addition of the net taxable gain takes it over £42,385, then part of the gain will be taxed at 18% and part at 28%.

As your civil partner has a low income, you could save some CGT by putting the property into joint names before you sell it. You will then each get a £11,100 CGT exemption to deduct from your respective shares of the gain and more of the net taxable gain will be charged to CGT at 18%.

I hope this helps but let me know if you have any further questions.

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