Scared of CGT liability

[broadlady]

I have only just found this forum and hope that you can help me decide whether or not to sell my rental property. (I've had enough of problem tenants!) I have tried to understand the details from the other postings here, but all I have achieved is to scream loudly!

I inherited a bungalow in December 1990, it was valued at £77.5K. It has been rented out since then. Today, I estimate it to be worth £200K. I have tried to work out how much capital gains I will have to pay if I sell, but I can't understand various taxation web sites that try to help! The answer I got is £31500, so I hope I've got it wrong.

I don't really want to move in to it but may have to I suppose. What degree of 'moving in' is necessary?

[Tax Accountant]

I have only just found this forum and hope that you can help me decide whether or not to sell my rental property. (I've had enough of problem tenants!) I have tried to understand the details from the other postings here, but all I have achieved is to scream loudly!

I inherited a bungalow in December 1990, it was valued at £77.5K. It has been rented out since then. Today, I estimate it to be worth £200K. I have tried to work out how much capital gains I will have to pay if I sell, but I can't understand various taxation web sites that try to help! The answer I got is £31500, so I hope I've got it wrong.

I don't really want to move in to it but may have to I suppose. What degree of 'moving in' is necessary?

Broadlady,

I don't know why you wish to scream when you have made gains of £123,000 on top of receiving the rents all these years!

And I am sure most people will gladly put up with the tenants' problems to receive not only the rental income but also the hugh capital gains.

As for Capital Gains, the calculations are as follows:

The value of 77.5K at inheritance date is increased by indexation allowance of 25.2%, ie 19.5K to take account of inflation upto April 1998 when indexation allowance was abolished for individuals) but not for limited companies). This takes the base cost upto 97K.

The gain is 200K less 97K = 103K over the period of ownership of approx 16 years.

The gain is then reduced by non-business asset taper relief, which replaced indexation allowance at April 1998, of 35%, ie 36K. This brings down the gain to 67K which is termed chargeable gain.

Finally, you will reduce the chargeable gain by your personal annual exemption of approx 9K, leaving a taxable gain of 58K which is added on top of all your other taxable income and gains of the tax year in which the bungalow is sold.

The taxable gain of 58K could be taxed at 10% and/or 20% and or 40% depending on how much of the gain falls into each of your tax brackets.

If you are a basic rate taxpayer earning a gross of approx £20K, some of the gains will be taxed at 20% and the rest at 40%. At a rough guesstimate, this will produce a CGT liability of 20K.

If you are already a higher rate tax payer, all the taxable gain of 58K is charged at 40% producing a maximum CGT liability of 23K.

If you move into the bungalow as your ACTUAL MAIN residence (legislation does not specify a time for which it needs to be occupied, but 6 months would be safer), you may reduce the taxable gain by 25K giving a tax reduction of approx 10K.

Therefore, your CGT bill could reduce from 23K to 13JK if you occupy the bungalow as your ACTUAL MAIN RESIDENCE for approx 6 months.

If you do not wish to occupy it as your ACTUAL MAIN residence, you could occupy it as your secondary residence AND nominate this as your MAIN residence for CGT purposes. Nomination is simply by writing a letter to your tax office. I emphasise that to be able to nominate, it must be used by you as a residence, albeit not as a main residence.

You are advised to read HMC&R CGT manuals and Help Sheets on their website.

Ramnik

[broadlady]

Thank you so much for that most concise reply. Your initial comments reminded me of my good fortune too. Having done some more rooting about since I posted the question, I believe that I could also use some stockmarket losses to reduce that bill too.

What a great forum. My personal 'thank you' to all who post questions and answers here.

[Tax Accountant]

Thank you so much for that most concise reply. Your initial comments reminded me of my good fortune too. Having done some more rooting about since I posted the question, I believe that I could also use some stockmarket losses to reduce that bill too.

What a great forum. My personal 'thank you' to all who post questions and answers here.

You are welcome.

Ramnik

[jiji2feng]

I am now have some personal problems, i don't know whether i can got some reply here?:o

[Tax Accountant]

I am now have some personal problems, i don't know whether i can got some reply here?:o
You don't know until you ask the question.

If this is unrelated to the above thread, it is best to start a new thread.

Ramnik