Capital Gains

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:

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.