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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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A)Individual CGT on Buy to let property Exactly what type of

Customer Question

a)Individual CGT on Buy to let property Exactly what type of works to a property can be offset against capital gain. Eg I spent a lot of money on structural repairs : under pinning, party wall agreements, cross stitching [tieing walls] replacing the roof,
windows, adding new kitchen, bathroom ect. I need to determine where the line is between ''general maintenance'' and ''deductible works/costs/expenses which have added value. b)Joint Beneficial interest in a property under a trust deed and CGT on sale of said
property. husband and wife are entitled to 1/5th share of sale proceeds of son's property after lending him money to buy home. It sells for £250,000 so they are entitled to £50,000. CGT 250k less cost £93k =£167k divide by 1/5 = £33,400. Taxible gain £26,600.
Can cost of loan to add a conservatory be deducted? ie £12,000, bring net Gain down to £14,600? And how will GCT be applied ie can both husband and wife file and split the £14,600 to £7,300 each...and if they do this what is the current CGT personal allowance?
Say £10,900...can they each claim this to offset? ...If so no tax is due, but do they both still have to complete a CGT tax return? If only one person allowed to file then would calculation be £14,600 less £10,900 =£3,700 assume tax at 18%.....is the above
logic and rough calculation correct? Kind regards
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Unfortunately, it is not as simple as that. Let me give you an example. Our club house needed a new roof. Our Honorary Auditor was a Price Waterhouse man so he consulted their tax department pro bono. They gave the opinion that as the club house had always had a roof the club was entitled to replace it out of revenue. This we did and the Inland Revenue, as it was then, did not bat an eyelid! However, it is generally accepted that improvements inflate the acquisition price for CGT and that such items as the installation of double glazing, central heating and extensions all come under the umbrella of improvements. Maintenance, as you have clearly grasped can be offset against rentals. I am of the opinion that the extensive works to which you refer would constitute improvements. Loans do not come into CGT computations, the interest element thereof are allowable against rental income. You say the property in in trust, in which case no individual beneficiary would suffer any gain on disposal, but the trust would and be liable to CGT on the whole gain at 28% with an Annual Exempt Amount of GBP 5550. Perhaps you could be kind enough to verify the trust position.
Customer: replied 1 year ago.
Thank you Keith, the two matters are unrelated and do not relate to the same property.
The property per se is not in trust,however there is a Declaration of Trust [Trust Deed]which gives the parties [Mr X and Mrs Y (owners in common) 2/5th ownership in common each in equal shares, and 1/5th beneficial interest to "Parents of Mr X "in respect of £12,500 aid for the completion monies at purchase of the property] in the property. Son has 2/5, to wife has 2/5 and parents have 1/5th. So, ''Owners in common paid £25k each'' Parents of Mr X aid £12,500. They also loaned £12,000 for a conservatory but this was a soft loan, not under the Trust Deed.So property sells for £250,000...Parents of Mr X are paid 1/5th share of sale monies -£50k or £25k each...assuming as they are pensioners ,they are basic rate [18%]tax payers, what would the CGT calculation and position be please?
r's Jil
Expert:  bigduckontax replied 1 year ago.
Right; each individual would be liable for CGT on their share of the gain. Forget about the loan, that does not come into the CGT computation although it does, of course, affect the final distribution. Could you please advise the original cost, the improvements to enable me to verify the gain as it is only the gain which is subject to CGT.
Customer: replied 1 year ago.
Hi Keith,
purchase price was £62,500 in 1992. £50k by owners and £12,500 by parents. So assuming it now sells for 250k what is the cgt for the parents please?
R's Jill
Expert:  bigduckontax replied 1 year ago.
250K - 62.5K - 50K - 12.5K = 125K gain of which parents share is 25K. Half each of 25K is 12.5K and each has an Annual Exempt Amount (AEA) of 11.1K leaving 1.4K exposed to tax at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale; worst case scenario is a tax bill of BGP 350 each. There would be an entitlement to Entrepreneurs' Relief which would limit the rate of taxation to 10%, but that is instead of AEA so the latter is the better option.
I do hope that my reply has been of assistance.
Customer: replied 1 year ago.
Hi Keith thank you re above...not sure your calculation is right, you seem to have deducted the 50k and 12.5k twice.....ie the 62.5k purchase price was made up of these 2 amounts so £250k selling price, les £62.5k purchase cost...surely???
Can you re-work the calculation correctly and also advise if the further £13k which parent paid for new conservatory can be deducted from parents CGT bill? Obviously as this is Matrimonial home and both son and wife live in it, they have no CGT on disposal, correct?
Can you please re work CGT for parents based on the above, pls.
many thanks
Expert:  bigduckontax replied 1 year ago.
250K - 62.5K = 187.5K / 5 = 37.5K gain - 11.1 = 26.4K @ 28% [worst case] = say 7.4K tax due. They would be better off with Entrepreneurs Relief at 3.75K.
Customer: replied 1 year ago.
any thanks- under what tax regime or application do they claim Entrepeneurs relief please....I thought this was just for companies? Please elaborate...
many thanks
Expert:  bigduckontax replied 1 year ago.
Firstly sorry for the delay in Response, I was moving base to Germany (don't mention the war). No, Entrepreneurs' Relief can apply to individuals too, Here is the Gov >UK advice of the matter: 'You’ll qualify if you dispose of any of the following:all or part of your business as a sole trader or business partner - including the business’s assets after it closedshares in a company where you have at least 5% of shares and voting rights (known as a ‘personal company’)assets you lent to your business or personal company'The full advice is available here: https://www.gov.uk/entrepreneurs-relief/eligibility Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3609
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
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