what do you pay capital gains on?
 

when selling a second house (ie an investment property)

do you pay capital gains on the whole profit from the original purchase price to the price you sell it at.

or can you offset the money you spend on the property doing it up.

eg: bought for £110k spent £40k doing it up sell for £200k

do you pay CG on the £110k difference to £200k (£90k) or the £50k profit.

do you take into account the selling cost?


how does CG work??


Phil

See here HM Revenue & Customs: CGT1 Capital Gains Tax
Remember is property jointly owned husband/wife 2 CG exemptions.

well I don't understand any of that LOL

Basically you deduct the costs related to buying, doing up, selling the property.

From the site above...

acquisition costs
incidental costs of acquisition
enhancement costs
expenditure on defending or establishing your rights over the asset
incidental costs of disposal.

/\ That covers purchase price, solicitors costs, estate agents costs, stamp duty, costs of doing it up etc.

You deduct all that from what you sold it for and what's left is the capital gain.

thanks Nat, I thought as much.

do you still keep what was put in as a deposit without paying CG on that too?

or do that just tax you on that when it goes in your bank!!!! lol

That is part of your acquisition cost.

Yep,Beat me to it! :)

It seems like a nightmare at first but after you've bought/sold a couple of properties (well one tbh) it's pretty straightforward as long as you do the obvious and keep all invoices, paperwork etc and have a good record of exactly what's what.

Yup in real basic terms you pay cgt on your profit.

Phil, don't forget:

1) You can't write off 'capital expense' ie costs incurred to rent the property ie EAs commission or furnishings. This should have been written off against rental income.

2) You get taper relief, ie the longer you have had the property the lower the amount of profit which is liable for cgt.

3) As far as I know it is simple to transfer from just your ownership to joint spouse ownership. If it is in just your name transfer it first as you will get another £8k exempt from cgt.

In my experience it is worthwhile paying an accountant circa £300 to do it for you. The taxman looks at cgt submissions VERY carefully. I did my own for a disposal in 2005 and the taxman enquired into it asking for every piece of supporting paperwork. He then fined me due to 'negligence' on my part because it was inaccurate which was a genuine mistake on my part.

Deep

Who's "responsibility" is it to make it known that cgt needs to be paid or where to pay it to?

One of my mates sold a flat recently about a year after owning it and pocketed the 15k profit (unless his solicitors deducted it which i doubt)

[quote=paul-s]Who's "responsibility" is it to make it known that cgt needs to be paid or where to pay it to?

His.
If Revenue discover the above he could be done for "Failure to Notify".
Not only paying the tax due, but interest as well togther with the posibility of penalty. Penalty is tax geared and is a % of tax due.
Size of penalty depends on seriousness of mission.
Can go to 100% in most serious cases.
See here Penalties: Failure to Notify Chargeability: All Years and here Penalties: Failure to Make a Return for ITSA Years: Introduction

don't you sign an inland revenue form when you sign for a house etc?

or declare it on self accesment form.


Deep.
I've a couple of valuers coming to one of my properties i bought last year and i've gutted it over the last 12months.
1. want to know whats its worth now.
2. is it worth selling bare in mind te CGT i'd have.
3. or just sit on it like all the others i have a rent it out.

option 3 does seems to make better long term finanical sense to me tbh.

If you've only had it one year there will be no taper relief, so will pay cgt on 'all' the profit( as discussed above.)

Personally I would only sell for the following reasons;

1) Cash needed for a bigger project

2) Desperatley need the cash for something else

3) You've cottoned on to the fact that you've bought a 'wrong un' and want to get shot of it.

4) There is a shortfall in the rent vs mortgage to the extent where a small jump in interest rates means you can't pay the debt and property will be repoed.

If none of the above apply I wouldn't sell anything. By the time you've paid all the expenses of selling (EAs fees/solicitors etc) and paid cgt with no taper is it really worth it? Just think when you are 60 and its paid itself off, when everyone else is living on £50/week you can sell it and buy a Ferrari!!:thumb:

actually you are allowed £7k profit before paying cgt , a huge amount !!

Think I'll keep hold of it for now, it'll give me £395pcm rent and covers the buy/to/let mortgage fine. plus the flats going up in price every year, only paid £45k so come next week I'll let you know what its been valued at now its 99.9% finish.

see pix ;) start to finish
72 Park View @ Fotopic.Net

Phil

had two valuations yesterday, both came in with same price, £65-67k

one of the agents was very honest and said if i was her, she sit on it and rent it out and not sell it yet!!

so think I'll put it in the paper to rent and see what happens.

i did speak with my account about CG though and he said I wouldn't be paying too much out if I did sell it as i've spent quite a bit doing it up :/