Need to sell a house and minimise my CGT

[wayne1]

Good morning all. I have yet another CGT question which I am hoping the forum can help with.

House bought 23.4.04 for £91500
mortgage £73624
Present valuation £110k
House is just in my name, i am not married, but live with my girlfriend(just in case you need to know!)

I obviosuly want to minimise my tax liability as much as poss and want to sell as soon as poss (after april 6th).

CAn you help please?????


Wayne

[Tax Accountant]

Good morning all. I have yet another CGT question which I am hoping the forum can help with.

House bought 23.4.04 for £91500
mortgage £73624
Present valuation £110k
House is just in my name, i am not married, but live with my girlfriend(just in case you need to know!)

I obviosuly want to minimise my tax liability as much as poss and want to sell as soon as poss (after april 6th).

CAn you help please?????


Wayne

Which tax liability are you talking about? Income Tax on rentals received or Capital Gains Tax on selling?

I assume you are talking about Capital Gains Tax. If so, please confirm how the property has been used from the date of purchase to-date, ie has it been occupied by you as your only or main residence, and if so during which periods. has it been let, and if so during which periods. Do you have another property, and if so give details of ownership periods and what this has been used for.

Ramnik

[wayne1]

the property was purchased on a buy to let 2 years ago and has always been used for that purpose. i am aiming to reduce my CGT. i do own 2 other rentals and my own PPR; the rentals i am aiming to sell over the next 2-3 tax years in order to clear my mortage on my PPR as this was my original plan from day one (recent problems has put me off landlording for ever!).
I have lived in my PPR for the last 5 years.

[Tax Accountant]

Good morning all. I have yet another CGT question which I am hoping the forum can help with.

House bought 23.4.04 for £91500
mortgage £73624
Present valuation £110k
House is just in my name, i am not married, but live with my girlfriend(just in case you need to know!)

I obviosuly want to minimise my tax liability as much as poss and want to sell as soon as poss (after april 6th).

CAn you help please?????

Wayne

Mortgage does not make any difference to CGT.

By April 2006, you would have owned the property for 2 years. Taper Relief only starts at 3 complete years of ownership. Therefore, this is of no assistance to you.

You are not married and therefore you cannot transfer to joint ownership without triggering CGT disposal on transfer.

Your gains will be approx £17,000 after deducting costs of buying and selling etc. After annual exemption, approx £8,000 will be added to your other taxable income and gains in the year of disposal and taxed to 10% and/or 20% and/or 40% depending on how much falls into each of the tax brackets. Maximum tax at 40% = approx £3,200.

You could sell/transfer half share in this property to your girlfriend (take legal advice of the implications if you fall out with each other before selling) before this 5th April 2006. Gain on sell of half share this side of the tax year end will be covered by your annual exemption. When you (and your girlfriend) sell your other half in the new tax year, the other half of the gain will be covered by next year's annual exemption. Therefore, you are spreading your gains over two tax years rather than all in one tax year. This way there will be no, or little, CGT on disposal.

The sell/transfer of half share to your girlfriend should not involve any great expense if you do this by way of a Trust Deed through your solicitors. This way the title deeds do not need to be changed and does not involve your lender etc. From the date of the Trust Deed, the property belongs equally to both of you and any rental profit thereafter should be apportioned to both of you.

You should also consider similar transfers for other properties.

You could also consider transferring all properties to your joint names and raise funds by remortgaging to reduce your residential mortgage. This would allow you to retain your rental properties and also to release money therefrom to reduce your mortgage. Sometimes it doesn't make financial sense to sell the properties for good in view of the capital appreciation which you would miss out on. You need to decide if the tenant problems you have obviously experienced could be addressed and allow you to retain your investments for the longer term.

Ramnik

[wayne1]

Thanks for that answer; if I had a CGT tax bill of say £3k, can I deduct stock and shares losses from that amount? If so then what is stopping me just speculating £3K on the stock market; if I lose the lot then deduct the loss from my CGT tax bill and hence pa no CGT. However if I gain on the stock market then this will help pay the CGT bill?

Sorry if this is a dumb question and thanks in advance any replies.

[Tax Accountant]

Thanks for that answer; if I had a CGT tax bill of say £3k, can I deduct stock and shares losses from that amount? If so then what is stopping me just speculating £3K on the stock market; if I lose the lot then deduct the loss from my CGT tax bill and hence pa no CGT. However if I gain on the stock market then this will help pay the CGT bill?

Sorry if this is a dumb question and thanks in advance any replies.

I won't comment on your last sentence but your logic is all wrong.

You are likely to pay £3,200 CGT on gains of approx £8,000. Therefore, you will need losses of £8,000 to wipe of all your taxable gains so as to leave NIL net gains and therefore NIL CGT. Effectively, you pay £3,200 CGT on gains of £8,000; by the same token, you save £3,200 CGT on losses of £8,000.

The logic is that if you lose all your taxable gains, there is no gains remaining in your hands on which to pay CGT. CGT is chargeable on NET GAINS.

Also remember, you need losses in the same tax year or unused losses brought forward from previous tax years to be able to offset against the gains. Therefore, if you make gains in tax year 1, and losses in year 2 or later years, the losses cannot be carried back to offset the gains of year 1.

Ramnik

[wayne1]

thanks for the info. one more question (Sorry). re the trust deed; is there a limit on how long another party is named on your property to benefit from there tax allowance?

[Tax Accountant]

thanks for the info. one more question (Sorry). re the trust deed; is there a limit on how long another party is named on your property to benefit from there tax allowance?

Simple answer is NO.

But it is essential to transfer your half share to your partner through the solicitors. If you do this on or before 5 April 2006, you would have effectively sold half share to her and you would declare this disposal of the half share, and half the capital gains, in your tax return for the tax year 2005-06.

Ramnik

[wayne1]

sorry for the delay in replying.
I used all of my tax allowance last year hence not transferring it. Is there still benefits in transferring half of the share now to my girlfriend and then sell the property say in 2 months?

thanks again

[Tax Accountant]

sorry for the delay in replying.
I used all of my tax allowance last year hence not transferring it. Is there still benefits in transferring half of the share now to my girlfriend and then sell the property say in 2 months?

thanks again

NO.

Ramnik