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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4197
Experience:  FCCA FCMA CGMA ACIS
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My wife and I bought a guest house in 1988 for £145,000. For

Customer Question

My wife and I bought a guest house in 1988 for £145,000. For tax purposes we divided the house into two-thirds commercial and one-third private.
In 2008 the property was valued at £390,000.
At that point we then spent £100,000 converting the house into two flats. £45,000 went into Flat 2 which we rented out. £55,000 went into Flat 1 which we live in.
We have sold Flat 2 for £200,000.
How do we calculate the Capital Gains Tax on the sale of Flat 2?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
For the period 88 - 08 (20 years) Capital Gains Tax would apply to 2/3 of the gain 390K - 145K @ 2/3 = 163.3K. You now have an 'acquisition price of 390K. Divide by 2 add 45K, improvements, = 240K. Loss on phase 2 is 40K - 163.3K, a final gain of 123.3K. Divide by 2 gives 61.65K each subject to CGT at 18% or 28% or a combination of the two rates depending on individuals' income income including the gain in the year of sale. Each has an Annual Exempt Amount of 11.1K leaving ; worst case scenario a bill of say 14.15425K each.
Confused, you will be! I do hope that you have found my computation of some use.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.