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bigduckontax
bigduckontax, Accountant
Category: Tax
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Please advise what is the Capital Gain Tax on the sale of the

Customer Question

Please advise what is the Capital Gain Tax on the sale of the property (not main residence- home).
(i)
I bought the house with an Auction Finance loan of -£30,000.
Then I paid interest to Auction Finance for the loan - - £12,000
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TOTAL: - £42,000
Please advise if £12,000 the interest for the Auction Finance loan will be off set (deducted) from my CGT?
(ii)
Further I refurbished the property that increased its value and re-mortgaged it. The re-mortgage amount secured against the property is £67.000.
(iii)
The refurbishment expenses/invoices for the materials and works done are £50,000.
Please advise if these expenses, ie £50,000 are off settable against my CGT?
(iv)
When this property sold for £120,000 how much is CGT I need to pay?
(Do I need to pay CGT from: £67.000 re-mortgage amount + £50,000 refurbishment expenses = total: £117.000).
Please advise how much CGT I need to pay for the property sold at £120.000 and how exactly it is calculated?
Many Thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Before I can answer this question I need to know the original purchase price. I know you financed it with a 30K loan, but was that the actual price?
Customer: replied 2 years ago.

Initial purchase price was £34.500.

Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to assist you with your question.

Firstly forget all about loans and the interest thereon. They do not come into the Capital Gains Tax (CGT) computation. The interest element of such loans is, however, allowable against rental income for Income Tax purposes.

CGT is levied on the gain made on disposal. The gain is the difference between the acquisition and the disposal price.

The acqusition price is 34.5K + 50K = 84.5K. You can add purchase costs including Stamp Duty Land Tax to this figure.

The disposal price is 120K less selling costs eg estate agents,' solicitors' fees, advertising etc.

120K - 84.5K = 35.5K less your Annual Exempt Amount (AEA) of 11.1K leaves 24.4K liable to CGT. This will be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. Worst case scenario is a tax bill of a tad over 6.8K.

You have not indicated if the house was let out and if it was did you occupy it at any time? This may alter my figures as indeed will any selling costs.

I do hope that my answer has shed some light on your CGT position.

Customer: replied 2 years ago.

Thank you. Would be the interest element of the loan £12,000 allowable against rental income for the income tax purposes - from another property i am letting out - from now during the next 5 years, or for how long, or at all?

Expert:  bigduckontax replied 2 years ago.

Yes at your marginal rate of tax, but after April 2016 only at 20% irrespective of your income level and consequent taxation level.

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Customer: replied 2 years ago.

Thank you. Will CGT also be after April 2016 only at 20% irrespective of my income level and consequent taxation level?

Expert:  bigduckontax replied 2 years ago.

As at present, no CGT change.

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Expert:  bigduckontax replied 2 years ago.

Thank you for your support.

The AEA may, of course rise, but on an guess say by 0.1K.