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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I bought an apartment in 1999 for £165000 and I am now considering

Resolved Question:

I bought an apartment in 1999 for £165000 and I am now considering selling it
It's current value is approx£900000
It has £120000 of borrowing against it
How much cgt will I have to pay and what can I do to reduce this? Even if It means delaying the sale for a few more years what can I do to reduce the liability?
Should I move into the property for a while ? Does this help?
If I move from my own home let's say fro 18 months to live in this apartment will I then be making my own home liable for cgt?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Have you ever lived in the property you are considering selling?
Expert:  TonyTax replied 1 year ago.
I am drafting an answer now.
Expert:  TonyTax replied 1 year ago.
I've asked JA to refund the other question and I am now doing some calculations and drafting may answer. As I said, I'm not a copy typist and I check my answers before posting them. You will get an email when I have posted my answer so please bear with me.
Expert:  TonyTax replied 1 year ago.
I'm assuming that the property has never been your main home. However, you might refer to HS283 for information on the main residence and CGT. Any gain is treated as having accrued on a straight line basis for the purposes of applying reliefs. If you make a gain of £735,000 in 2015/16 (£900,000 - £165,000) , the first £11,100 will be exempt from CGT due to the annual CGT exemption leaving a net taxable gain of £723,900. There are two rates of Capital Gains Tax, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year you dispose of the property. Look here for information on how to calculate the CGT rate or combination thereof if you need to. No more than £31,785 of the gain can normally be taxed at 18% in 2015/16 and that assumes your income is less than the personal income tax allowance of £10,600 which is unlikely. Every £1 of income you have in excess of £10,600 reduces the amount of the net taxable gain chargeable to CGT at 18% by £1 and increases the amount of the gain chargeable to CGT at 28% by £1. So, the worst case scenario is that you will pay CGT at 28% on the whole of the net taxable gain of £723,900 leaving you with a CGT liability of £202,692. If you move into the property for a year or so, you would in theory qualify for exemption from CGT for the last 18 months worth of the gain as a proportion of the whole gain. In addition, you would qualify for letting relief if the property has been let which could be worth as much as £40,000. HS283 has more information on this. You cannot get letting relief unless the property has been your main home and let. HMRC may challenge your claim for main residence relief if they consider that you moved into the property only to qualify for some main residence relief and letting relief (assuming the property was let) as opposed to making the property your home and seek to disqualify it. HMRC have been winning an increasing number of cases at tax tribunals on this basis. You would need to move lock, stock and barrel into the property. That means for all purposes. You would need to change your address for all bills you receive for credit cards, clubs, your employer, etc and give the impression that it it is a medium or long term move. Look here for more information. All of this is open to judgement and there is no guarantee a move into the property would get you the relief but the longer you live in the property, the better your chances. Any successful claim will obviously open up part of any gain you make on your current home to CGT if you ever sell it. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank u
I am assuming also that the mortgage repayment would be deducted? Before you calculate the gain?
So it would not be that much??
Expert:  TonyTax replied 1 year ago.
The mortgage doesn't come into the calculation of capital gain. If you bought the property for £165,000 with a mortgage of £120,000 and a cash deposit of £45,000, you would not deduct the mortgage again as its part of the £165,000. A gain is basically calculated by deducting the purchase price from the disposal proceeds. How the original purchase is financed is irrelevant as far as CGT is concerned. The costs of purchase and disposal of a property can be claimed against the gain (stamp duty, legal fees, survey fees, selling agent fees etc).
Customer: replied 1 year ago.
Yes but if I had bought the apartment cash and had subsequently secured borrowing against it in the meantime ..surely that has to be paid off first before any profit can b assessed?
Expert:  TonyTax replied 1 year ago.
I'm afraid not. If you paid £120,000 for something else using the apartment as security, that something else cost £120,000 not the apartment. If it was possible to wipe away a gain by borrowing against the property and buying something else nobody would pay CGT on property ever.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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