Help with CGT calculation

"Bruno" wrote

Isn't that kind of hard on your head? :-(

"Bruno" wrote

Ronald will be along in a second with a full & comprehensive answer.

Date of Replacement Windows?

Ignore that:

The date of any enhancement expenditure is irrelevant. You work out the qualifying holding period by reference to the date you acquired the asset, or 6 April 1998 if later.

Homework is fun!

The windows went in after this date thanks

That bit only applies to Taper Relief.

The date of expenditure is still relevant for the purpose of calculating indexation allowance thereon, but in this case since it was after 4/98 the question doesn't arise.

Thanks everyone for all your coments but I'm still asking for a calculation PRETTY PLEASE

Bruno

I think you'll be out of luck Bruno. With these homeworky or "I'm such a cheap-skate I don't employ an accountant but I demand a free service here from the professionals" (even if it is coined in a pretty-please-with-icing-on-the-top format), the professionals stay well away.

Now if you have a go at it yourself they'll point out your errors sure enough and you'll learn. This is *really* a subject you ought to know about, are you really so short-sighted that a year after you sold your house you are only just getting to grips with CGT?

Or (as I rather suspect) are you just looking for confirmation that DIY calculation is right and don't want to appear a fool if you've got it wrong?

Anyway FWIW as a very-non-expert here's what I'd do:

Subtract all the costs from all the income to calculate the chargeable gain.

Sale date - April 7th 2005 Sale price- 110k Selling fees - 1885 Outstanding mortgage - 0

= 108,115

Purchase date - 16th may 1997 Price - 39k Purchase costs - 1000 Immediate refurbished costs - 1000 Replacement Windows - 3550

= 44,550

chargeable gain.= 63,565

split 2 ways 31,782 for you and your wife:

You each get 4,100 annual exempt amount: = 27,682

You held the business asset for 8 years so the Taper Relief is 25% = 20,761 each.

Souyou and your wife will be paying CGT of 22% up to 31,400 and 40% thereafter.

Which doesn't help you much beacause it is almost certainly wrong!

Oh yea and it's due on the balancing date for year 2004/2005 ie 31st January

2006.

section 3.4

How do you know the sale date? It's in the future. You need to be aware that the relevant dates are *not* when the sale completes (money paid) but when the sale is irrevocably agreed (conclusion of missives or exchange of contracts). So it might be that the relevant purchase month is April or even March 1997, and also that the date of sale still falls into the

2004/05 tax year.

I think I'd take these refurbishment costs as part of the capital cost of acquisition even though there may be an element of repairs. Might need slight adjustment to the indexation allowance if this cost was not incurred in the same month as purchase.

So basically acquisition cost £41k of which (say) £40k in April 1997 and £1k in June 1997 (indexation factors 0.040 and

0.032 respectively, giving indexation allowances of £1600 and £32).

This is a slightly awkward one. If the specification of the new windows is basically the same as that of those being replaced, this is really a repair and has no place in the CGT calculation. The cost should have been deducted from the rental profits in the *income* tax calculation. If the new windows are better than the old ones, then you should put the repair portion (what it would have cost to replace with equivalents) into the revenue (income) account, and only the betterment element (excess cost over and above "repair") goes into the capital account. But chances are it's too late if you've already submitted your income accounts for the year in which they were replaced. So let's treat the whole lot as part of the capital account.

Mortgage loans are irrelevant.

So: Net sale proceeds are £108,115 Gross acquisition costs are £41,000 Further Enhancement costs £3,550 Hence raw gain is £63,565. Deduct indexation allowance £1632 giving gain before taper of £61,933.

Now, the sale date is crucial. If, as I suspect, 7th April is the anticipated completion date, then the exchange of contracts is likely to be before 6th April, and this means you have one less full year of taper relief available. You'll have owned the place for just under 7 years from 6th April 1998, so only 6 years count. But as you owned the place before the Budget date in March 1998, you get a bonus year. So you get 25% taper relief, making your chargeable gain £46,449, or £23,224 each if you own the place jointly with "her indoors", from which you deduct the annual allowance of £8200 each, so you each have to pay tax on £15,024.

Assuming your salary is your only income and you have no other gains, this makes your taxable income £17,255, which is £14,145 below the higher rate threshold. So you would pay 20% of £14145 plus 40% of £879, and her indoors 20% of £15024. If she is your actual wife you could save a bit by transferring a small share of the place to her prior to sale, making your ownership say 55/45 instead of 50/50. That way you avoid the 40% bit altogether, so between yourselves you'd pay 20% of £30,048.

If she's not your wife, and you own the place alone (i.e. she owns none of it), then I'm afraid you're looking at paying 20% of £14145 plus 40% of £15903.

You pay the Inland Revenue, not Mr Brown. By the end of January 2006 if the sale was in fact agreed during 2004-05. Otherwise one year later (in which case use the new annual allowance instead of £8200, which is likely to be a bit bigger).

Now, over to Tim who'll find all my mistakes.

Why 20%?

"Troy Steadman" wrote

Hey - since when has your name been "Tim" ?!!

I am not sure what you mean.

Are you saying that CGT is taxable at 22%? If so, that is not correct.

CGT rates are 10%, 20% and 40%.

What makes you think he thinks his name is "Tim"? He hasn't found any mistakes, after all, save his own.

LOL. CGT is surely the most esoteric of all the taxes and I guess the tax which hits us hardest, particurly if we are BTLing at a time when house prices double every five years.

Presumably from a CGT point of view letting your current home rather than the BTL home is the most tax-effective method. In this example from the IR website which I have condensed a little...

original at:

...I cannot see where the £112,000 "gain arising due to the letting" comes from (8/10 of the £140,000, why not 5/10ths?)

Example 5 Mary Jones sells her house in 2004 after owning it for 10 years. Her gain is £140,000. Mary occupied the whole of her property for two years before letting the whole of it for the remaining eight years. In this case she is treated as occupying the whole property for the last three years of her ownership.

The proportion of her gain which qualifies for private residence relief is

first 2 years + last 3 years = 5 / 10 year period of her total ownership

5/10 x £140,000 = £70,000

The lettings relief is the lower of £70,000 or £112,000 or £40,000, that is £40,000.

Gain £140,000 Less Private residence relief £70,000 Lettings relief £40,000 £110,000 Chargeable gain £30,000

It's 8/10, because the house was let for 8 years. It's 5/10 for PPR relief.

Surely NCDT is more esoteric.

The more tax you pay, the more money you make. Not really terribly much of a problem, is it?

No, letting your *former*, not necessarily current home. But yes, absolutely, and it's done me well.

Here's a little exercise for you.

Example: 9 years ownership, first 3 years as main home, then 3 years as second home, then 3 years let. Total gain 90k.

You do not get lettings relief for empty periods, only for periods when the property was actually let. So, in this example, the owner obviously gets PRR of 6/9 of 90k (first 3 and last 3 years).

Question: Does the owner *also* get lettings relief of 3/9 of 90k, as would clearly have been the case had the sequence of uses instead been main home, then let, then second home?

If there is no mistake in your quoted example 5, then the answer should be yes. If the answer is no, then there is a mistake in example 5 (albeit inconsequential in context).

"Ronald Raygun" wrote

What date applies if the contract is conditional? [I.e. not irrevocably agreed even after exchanging contracts.]

Suppose contracts are exchanged on date A, which allow for an (external) condition, and only become effective when the condition is satisfied. Suppose the condition is satisfied on date B with completion to occur later at date C (perhaps date B + 4 weeks).

From your comment above, I would ignore date C - but which of dates A or B apply??

I can?t argue with that Ronald since AFAICS the only person who has ever mentioned that acronym in Usenet and/or the web is yourself and then only on one occasion:

I think money lost is money lost and if a lot of money is lost as a result of penny-pinching on advice I think most of us would feel rather gutted.

I am glad.

What is lettings relief?

If you let part or all of your home as residential accommodation, relief is available on the gain which would otherwise become chargeable as a result of the letting, up to the lower of:

· the private residence relief due to you = £60k · the gain arising due to the letting, or = £30k · £40,000

So yes example 5 is right. Thanks Ronald and Doug.