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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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With my wife i bought a house in 1998 for £40,000 cash. It

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With my wife i bought a house in 1998 for £40,000 cash. It needed extensive renovation which i carried out( probably £50-£60,000). My tenants have moved out and i am considering selling it at say £170,000. I will be 70 years old in a few months and we are both both standard tax payers. How would i calculate the CGT payable.? I do not have receipts for the renovation.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Was the property ever your main home?
Customer: replied 1 year ago.
no
Expert:  TonyTax replied 1 year ago.
Thanks. Leave this with me while I draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 1 year ago.
Assuming the property was jointly owned, you will each make a gain of £35,000 (£170,000 - £40,000 - £60,000 / 2). HMRC may ask to see proof of the renovation work and disallow any you cannot provide it for. Even photographic evidence will help. The first £11,100 of your respective gains will be exempt from tax leaving you each with a net taxable gain of £23,900. There are two rates of CGT, 18% and 28%. The rate or combination of the two rates that you will pay will be dependent on the levels of your respective incomes in the tax year you sell the property. The lowest that each of your CGT liabilities can be is £4,302.00 if it is all charged at 18%. The highest that each of your CGT liabilities can be is £6,692.00 if it is all charged at 28%. Take a look here for information on how to determine how much of your gain will be charged at each rate. There is a useful calculator here. The most that can be charged at 18% in the 2015/16 tax year is £31,785 and that is only if your income is less than the personal allowance of £10,600. I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 1 year ago.
I have to go out for about 30 minutes but I will be back to answer any follow up questions you may have.
Expert:  TonyTax replied 1 year ago.
I'm back.
Customer: replied 1 year ago.
I was hoping there would be some inflation indexing on the initial purchase price, but,it seems not from your calculation.
Expert:  TonyTax replied 1 year ago.
I'm afraid that indexation allowance and taper relief were withdrawn many years ago.
Customer: replied 1 year ago.
what if we went to live in it for say 12 months?
Customer: replied 1 year ago.
Perhaps a better option for our children would be keep it for them to inherit the house which could be tax free, am i right?
Expert:  TonyTax replied 1 year ago.
ff you did that, theoretically, you would qualify for relief from CGT for the last 18 months of ownership as a proportion of the whole gain and letting relief of up to £40,000 per part owner. Take a look at example 9 in HS283 to see how those reliefs are calculated. However, HMRC may challenge your claim to those reliefs on the basis that it was never your intention to make the property your home and that you moved in simply to get the main residence and letting relief. They are winning an increasing number of such cases at tax tribunals. That's not to say you won't succeed . Its just a health warning.
Expert:  TonyTax replied 1 year ago.
If you left the house to your children, then they would inherit it with a CGT cost equal to its market value at the time of your death. There may be Inheritance Tax to pay by your estate depending on its overall value.
Customer: replied 1 year ago.
Yes i expect there will be inheritance as our 4 houses would come to more than a million, but we did make provision in our mirror wills to set up discressionary trusts on our deaths some years ago. Is this still the best way or do we need to update them to take in current legislation?
Expert:  TonyTax replied 1 year ago.
Trusts aren't as tax efficient as they were and, given the value of your estate, I would have everything reviewed if I were you. Trusts now come with 10 year 6% IHT and exit charges. You can read about that here.
Customer: replied 1 year ago.
If i added my two children to the title deeds of the four houses would these pass to the survivors without tax as long as we survived 7 years?
Expert:  TonyTax replied 1 year ago.
You could avoid IHT but not on the entire value as you would still have some ownership. There would be an immediate Capital Gains Tax issue for you from gifting assets and if you are including your own home in that, whilst there would be no CGT if you have lived in it since you bought it, it might be a gift with reservation of benefit and remain as part of your estate unless you paid rent.
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