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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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We own a rental flat - we owe about £120,000 on it, a studio

Customer Question

We own a rental flat - we owe about £120,000 on it, a studio flat in London. It's likely to sell for £250,000 and it was bought for £150,000. We will be selling it soon and wonder what the capital gains are likely to be. It is our ONLY property - although we have never lived in it (owned since 20050. We rent the flat we actually live in.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

If you sell the property and make a gain of £100,000, the only relief you will be entitled to will be the annual CGT exemption of £11,100. Assuming there are two of you, you would each have a net taxable gain of £38,900.

There are two rates of CGT for residential property, 18% and 28%. The rate or combination of rates that you will each pay will be dependent on your respective incomes in the tax year you make the gain. No more than £32,000 can be taxed at 18% (unless you pay pension contributions net of 20% tax relief which will extend your basic rate tax band) and that figure (the £32,000) is reduced by £1 for every £1 of income you have in excess of £11,000, the personal allowance.

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

Customer: replied 1 year ago.
I bought the flat before I met my husband and only my name is ***** ***** lease. I work PT and make about £8000 after tax per year. My husband brings home about £4000 per month. Does that make any difference to the answer?
Expert:  TonyTax replied 1 year ago.

I need to know pre tax earnings to be able to do some accruate calculations.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
I make on average £670/ mo and pay no tax according to my pay slip
We get £850/mo on the rental flat. £300/mo goes to the mortgage.
And my husband earns £55,686 pa
Take home £3,007 a month
That’s after putting £464 into his pension?
Expert:  TonyTax replied 1 year ago.

Thanks.

Leave this with me while I do some calculations. It will take a while.

Expert:  TonyTax replied 1 year ago.

If you sell the flat solely, you will have a net taxable gain of £88,900 (£250,000 - £150,000 - £11,100). Your CGT liability will be £22,056 (£28,360 @ 18% + £60,540 @ 28%).

If you put the flat into joint names before you sell it, you will each have a net taxable gain of £38,900. You will pay CGT of £7,726.00 (£31,660 @ 18% + £7,240 @ 28%). Your husband will pay CGT of £10,892.00 (£38,900 @ 28%). Yiour combined CGT liabilities will be £18,618 which is some £3,438 less than the CGT liability would be if you sold it solely.

Expert:  TonyTax replied 1 year ago.

Depening on how long it took to sell, if the property was in joint names, your husband would pay 40% tax on his share of the net rental ncome.

Customer: replied 1 year ago.
Finally, I'm wondering about other allowances or ways of reducing the CGT.
Can we deduct stamp duty, solicitor's fees, agent fees, survey fees?
Interest on the mortgage?
Capital improvements on the property?
We will almost immediately use funds from the sale of our buy-to-let to buy a home for ourselves. Does that make an difference to CGT?
Thank you for your assistance, it's been very helpful.
Expert:  TonyTax replied 1 year ago.

You can deduct all the expenses you mentioned.

You cannot deduct mortgage interest. You should have been deducting that from the rental income.

You can claim the cost of improvements which enhance the property but not general repairs and maintenance which again should be deducted from rental income.

You cannot defer CGT by investing in another property for you to live in.