I understand that Capital Gains Tax (CGT) on property sales has undergone some changes since April 6, 2008. How do I calculate my CGT liability after this date?
Calculating Capital Gains Tax – Sales after April 6, 2008
To work out any capital gains due, slot your figures in to this matrix
STEP 1
£ |
£ |
|||
Sale price: |
x |
|||
Less: | ||||
Purchase price: |
x |
|||
Incidental purchase costs: |
x |
|||
Improvement costs: |
x |
|||
Incidental sale costs: |
x |
|||
(x) |
||||
Chargeable gain: |
x |
Terms explained
· ‘Sale price’ is the amount the buyer pays you
· ‘Purchase price’ is the price you paid the seller
· “Incidental purchase costs’ are Land Duty Stamp Tax, mortgage arrangement fees, legal fees and disbursements (All inclusive of VAT if charged)
· ‘Improvement costs’ are additions or enhancements to the property that are still in place at the time of sale ie a new extension, garage or porch. They are not repairs or renewals of existing features ie replacing the roof, putting in a new bathroom or kitchen of the same standard as the existing fittings.
· ‘Incidental sale costs’ are legal fees, estate agent costs and mortgage redemption costs.
· ‘Chargeable gains’ is the amount CGT is charged on
STEP 2
Next, split the chargeable gain by the number of owners pro rata their share – ie if you own the property 50:50 with a partner of spouse, then divide in half.
If you own a25% of the property and someone else owns 75%, then your share is a quarter of the chargeable amount and your partner’s is three-quarters.
Now you have a chargeable amount for each taxpayer, they can deduct:
· Their personal annual CGT exemption – £9,200 for 2007-08 and £9,600 for 2008-09
· Any available capital losses they have not been set off against other chargeable gains
STEP 3
If the amount remaining is a negative amount, then you have an allowable loss.
If not, you have a chargeable gain. Your CGT is 18% of this amount.
WORKED EXAMPLE
Alan and Nicole bought a buy-to-let property for £50,000 in April 2002. They sold it for £120,000 on April 10, 2008.
They own the property jointly as tenants–in-common with a 50:50 share. Neither of them ever lived in the house as their main home.
Their CGT is worked out like this:
£ |
£ |
|||
Sale price: |
120,000 |
|||
Less: | ||||
Purchase price: |
50,000 |
|||
Incidental purchase costs: |
3,750 |
|||
Improvement costs: |
0 |
|||
Incidental sale costs: |
4,775 |
|||
(58,525) |
||||
Chargeable gain: |
61,475 |
|||
Alan |
Nicole |
|||
Gain per owner (£61,475/2): |
30,737 |
30,737 |
||
Less personal exempt amount |
(9,200) |
(9,200) |
||
21,537 |
21,537 |
|||
Less personal capital losses |
0 |
0 |
||
Taxable chargeable gain |
21,537 |
21,537 |
||
CGT @ 18% |
3,877 |
3,877 |
Article date: July 14, 2008
Answers provided for the Tax FAQs on LandlordZONE by©LandlordZONE All Rights Reserved – never rely totally on these standard answers. Before taking action or not, always do your own research and/or seek professional advice with the full facts of the case and all documents to hand.