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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I retired at age 49 with an occupational annual pension and

Customer Question

I retired at age 49 with an occupational annual pension and a lump sum. Rather than getting another job i bought a 2nd property with my lump sum. The property was in a very bad state of repair. It has taken me 5 years to renovate it. During this time it has been unoccupied. I now wish to sell the 2nd property. I paid £72000 fir it in 2011 and I wish to sell it for £120000 in 2016. The property is in joint names with my wife. My wife has an occupational pension and works full time - she is a basic rate tax payer. I pay basic rate tax on my pension. What will be my tax implications if i sell. Thank you.
Submitted: 11 months ago.
Category: Tax
Expert:  TonyTax replied 11 months ago.

Hi.

Assuming the property is never your main home, any gain will be subject to CGT. The gain will be computed by taking the net of disposal costs sale proceeds and deducting the purchase price, the costs of purchase and any renovation costs. The first £11,100 of your respective shares of the gain will be tax free.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your respective incomes in the tax year of disposal. A maximum of £32,000 of the net taxable gain for each of you can be taxed at 18%. That figure will reduce by every £1 of income you have over £11,000, thereby increasing the amount taxable at 28% by £1.

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

Customer: replied 11 months ago.
I bought the property for 70000. Renovation costs and fees are estimated at 10000. If I sell at 120000 can you show me the calculation, which would assist my understanding of your answer. In 2016 my gross income is 18000 and my wife's is 20000.
Also because I only ever bought with the intention of renovating for profit am I not eligible to pay income tax on the resultant gain, or would this be more costly. Thanks - Paul.
Expert:  TonyTax replied 11 months ago.

Let me do some calculations.

Expert:  TonyTax replied 11 months ago.

Gain for each of you £20,000 ((£120,000 - £70,000 - £10,000) / 2)

Annual CGT exemption £11,100

Net taxable gain £8,900

CGT at 18% £1,602

Had you completed the renovations and sold the property much quicker which is what property developers aim to do, then you would pay income tax and NIC on the profit. That would be more than CGT unless you borrowed money to fund the purchase and renovations in which case the interest you paid would be deductible.

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