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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My wife bought a property to let in 1985 for £46,000 and sold

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My wife bought a property to let in 1985 for £46,000 and sold it in 2014 for £210,000. Total cosots of purchase, sale, improvements over the years etc amount to approx £27,000.
She is a basic tax payer (retired) with a pension well under the tax free allowance, and no other income.
She invested £66,000 of the profit into an EIS scheme.
If our calculations are correct (210,000 - 27,000 - 11,000 - 46,000 - 66,000) she would be liable for CGT on £60,000.
Can you verify this and indicate how the tax would be calculated?
Thank you
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Assuming the property disposal occurred in the 2014/15 tax year and it was never your wife's main home, then your calculation of the net taxable gain is correct.

There are two rates of Capital Gains Tax, 18% and 28%. The rate or combination of rates that your wife will pay will be determined by the sum of her income and the net taxable gain in the tax year the property was sold. One of the following scenarios will apply:

1 If the sum of your wife's income and the net taxable gain was £41,865 or less in 2014/15, then all the taxable gain will be charged to CGT at 18%.

2 If your wife's income alone was £41,865 or more in 2014/15, then all the taxable gain will be charged to CGT at 28%.

3 If your wife's income alone was less than £41,865 in 2014/15 but greater than £41,865 when the net taxable gain is added, then part of the net taxable gain will be charged to CGT at 18% and part at 28%.

If your wife was born between 6 April 1938 and 5 April 1948, then her personal allowance will be £10,500. This will effectively mean an extra £500 of the gain will be charged at 18%.

If your wife was born before 6 April 1938, then her personal allowance will be £10,660. This will effectively mean an extra £660 of the gain will be charged at 18%.

HMRC may ask for proof of the cost of improvements made to the property in the form of receipts and invoices. The part of the gain covered by an EIS investment is only deferred until a subsequent sale of the shares bought. Take a look at pages 4 to 7 HS297 here for more information on deferral relief.

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