paul w

Hi,

I have some BtL's and cant be arsed with the hassle so need a way out and want to reduce my tax bill.

My thinking is to sell maybe my 3 worst houses over the next 3 years,starting with my first buy 10 years ago,this will qualify for 40% relief so if the gain is 100k do i take the 18k cgt allowance off 82k- 40% £32800 so i get taxed on 49200 or do i take the 100k knock the 40% off =60k then our 18k allowance so only get taxed on 42k

I also have 2 children that will end up with a house each later on if that makes any difference.

Any advice appriciated as i do my own accounts so as yet dont have a tax expert on my side,also if anyone knows of a property tax expert i will glady pay for their services to get this bill reduced.

Cheers Paul

Luminous

iTrader: (3)

I am not a tax expert, and do not (as yet) have any professional qualification that allow me to advise people on tax. So the following advice is presented "as is", and everything needs to be checked

For a property disposal, the steps are as follows.

Step 1 - Work out your chargeable gain:
That is the sale price, less the purchase price.
You are allowed to increase your purchase price by including the costs of purchasing the property.
You are allowed to reduce your selling price by the costs of selling the property
You can further decrease the gain by the costs of any improvements that you have made to the property (note, not repairs or maintenance).


Step 2 - apply pre 1982 exemption, indexation, taper relief then allowances
Capital gains before 1982 are not taxed, an important point, but I believe irrelevant for you
The purchase price between the years of 1982 and 1988 can be increased through the use of an indexation allowance, which reflects the increase in growth of the Retail Price Index. Again this may not be of concern to you.
Taper relief is available, for non business assets held for 10 or more years the relief is 40% leaving a chargeable gain of 60% calculated as follows

you are allowed to carry forward one year of unused cgt allowances
you are allowed to carry forward any capital loses you have indefinitely (always use allowances first)
so for the first house you take off 18k of cgt allowance, the next house if sold one year later is only 9k off.

Step 3 - calculate the amount of tax you owe on the gain
You imply you are 40% tax payer (edit, we now know you are basic rate), if you are borderline then things may be more complex (income, gains then dividends need to be taxed in that order)


Example:
90k chargeable gain after deduction of selling costs etc
No pre 1982 exemption
No indexation allowance between 1982 - 1998
Taper relief (10 years worth) is applied first 90 x 60% = 54k
Now allowances are applied - 2 years worth for yourself 17.6k leaving 36.4k taxable

Some of this will be taxable at 20% - the basic rate for capital gains (note, not 22%)
Once you reach the upper earnings threshold the remainder will be at 40%

So there will be quite a bit of tax to pay, the maximum being £15k

If the house is in joint ownership then you will have only a proportion of the gain. eg if you are married and the house is jointly owned then it MAY be possible to say that only 50% of the gain is yours. This way you can use your cgt allowances and your wife's. Be careful how you use the allowances up, use the oldest you carry forward first. This will leave some of this year's allowance for your next property, and no tax payable on the first disposal at all (using 100k).

This is where my suggestions end, you will need the services of an accountant if you want this all checked. Work some figures and get him to check them.

paul w

Hi,

Thanks for reply,

Couple of things,i'm not a 40% tax payer,that was the 40% taper relief,60% chargable i refered to.

The house is just in my name at the moment so was going to add the wife to it,is that true i can use an unused gain from a previous year if so then that is great news as i will bank 90k gain off the first house so after all the allowances there will be little or no tax to pay.

Thanks Again

Luminous

iTrader: (3)

I was hoping that some other people would step in to help out here, but it appears that tax is not a popular topic ....i wonder why

It is true that you can carry forward one year's worth of cgt allowance. The exact way to do this, eg forms and declarations I am not sure. There may be a place for it on your tax return, or you may have to make a special application. I just don't know and won't be covering that information in my studies any time soon..sorry...i guess just looking on the revenues website will tell you all you need to know.

As you are not a 40% tax payer things can get a little more complex.
Having a wife complicates the advice also, as although her name is not on the property the fact that you are married does mean that she is entitled to 50% of it.

This is where you will need proper advice from a practicing tax adviser. Your wife obviously has allowances, and you may be able to use some of them as well as yours. Your wifes income will come into these calculations as well. Clearly the person who is earning the least will be the one that wants to have as much of the capital gain applied to them as possible.

How to achieve that last statement is an area I cannot help you with. I just don't know all the nuances of the rules to be sure how you can move that gain around between yourself and you wife, to take advantage of both your allowances and income levels.

Having a good read of what I have written down will prime you well for talking to an adviser. Having an idea of the concepts should make things easier on the day. You can also "test" the adviser with some nice questions, if he does not know or falters....use someone else

Luminous

iTrader: (3)

IMPORTANT UPDATE...I have edited my initial comments The allowances need to be applied in a different order to how I explained. I'm not a tax adviser, and on my day of rest when I gave the advice I did not have my crib sheet in front of me.

The tax position is unfortunately worse than before, as the allowance is a reduction in the chargeable gain, rather than a reduction in the tax that you pay. Sorry about that, my brain was a bit frazzled after last week of dealing with other stuff that does work how I originally explained it!

fast bloke

Pay a decent accountant - It could save you thousands

Fangoria

iTrader: (1)

For what its worth - I'm a lowly chartered accountant (least those are the initials I use ;-)..............) but deal with multi-billion £ companies not this sort of area

My twopenneth

1. Capital gains tax band relief cannot be carried forward from one year to the next
Current band is I think £9.2k. You and the wifes add up to £18.4k. If you can now carry forward last years that is news to me and is quite a radical change in the tax system!

2. You take the gain payable and take the allowance off this and you pay incremental tax on the gain as though it was additional income shared 50/50 depending on ownership

I have a number of BTL's and I am looking to trs all properties to my wifes sole name and she will quit her job for a a few years...... we will then sell one next year with my wife having no taxable income to reduce the taxable gains...........

Luminous

iTrader: (3)

Fangoria, I just looked up my capital gains tax info. It does mention that the unused proportion of last year's capital gains tax allowance can be carried forward. It does not elaborate further.

Personal allowances cannot be carried forward, not sure if that was what you were thinking of.

Anyway, my text is one year out of date (as can be seen from my figures of 8.8k)

fast bloke

I thought you could carry forward a loss but I haven't come agross the ability to carry forward a CGT allowance. (You can carry forward a gift allowance for IHT purposes, but that is unrelated in this case)

baser999

iTrader: (2)

Try the Revenues official site HM Revenue & Customs: Home Page which is usually a good initial point of reference.