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How to reduce capital gains tax? Person owns a second home. 15

Resolved Question:

How to reduce capital gains tax?
Person owns a second home.
15 years later they sell it.
The owner makes a gain of £300k.
The owner has lived at the second home every now and then but has not declared the property as main home.
The owner is a high rate tax payer.
How much capital tax is the owner liable to pay?
The completion of the sale took place in August 2015.
When should the owner pay the tax to the authorities? April 2016?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

An individual can only have one main home at any one time. In the absence of an election, the case will be decided on the facts if the individual chooses to claim an element of main residence relief. Take a look at HS283 here for more information on CGT and the main home.

If an individual makes net gains of £300,000 in 2015/16, the first £11,100 will be exempt from CGT due to the annual exemption leaving net taxable gains of £288,900.

There are two rates of CGT, 18% and 28%. The rate or combination of rates payable is dependent on the level of the individual's income in the tax year that the gain is made. The disposal took place in 2015/16 so one of the following scenarios will apply:

1 If the sum of the individual's income and the net taxable gain is £42,385 or less, then all the net taxable gain will be taxed at 18%.

2 If the individual's income alone is more than £42,385, then all the net taxable gain will be taxed at 28%.

3 If the individual's income alone is less than £42,385, but more than £42,385 when the net taxable gain is included, then part of the net taxable gain will be taxed at 18% and part at 28%.

A CGT liability for 2015/16 will be payable on 31 January 2017.

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

Customer: replied 1 year ago.

I read that there are ways to reduce how much CGT one pays.

eg. by paying into pensions to reduce tax band within the year.

Can you advise me on that?

How long does one have for notifying HMRC about a capital gain?

Expert:  TonyTax replied 1 year ago.
The rate of CGT you pay is determined by your income level. If you pay pension contributions they will reduce the amount of income taxable at 40% which in turn will reduce the amount of the taxable gain chargeable at 28%.

You will need to notify HMRC of your capital gain no later than 31 January 2017. You will need to register for self-assessment by completing an SA1.
Customer: replied 1 year ago.

If the sale was completed in Aug-15

when does the person need to register for self assessment?

Should this gain be included in FY15/16 return?

When I FY15/16 return due?

Expert:  TonyTax replied 1 year ago.

I would register after 5 April 2016 and no later than 5 October 2016.

The 2015/16 tax return should dislcose gains made in 2015/16, ie between 6 April 2015 and 5 April 2016 and be submitted to HMRC by 31 October 2016 if completed on paper and by 31 January 2017 if completed online. Any CGT due will be payable on 31 January 2017.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15883
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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