Capital gains tax

[felinechums]

Does anyone know how much capital gains tax you have to pay if you sell a property that is not your main residence?
Thanks

[kags]

There are several steps to the calculaton
1. Deduct the cost from the proceeds. If the property was held at March 1982 the cost will be the value at that date. This is your gross gain.
2. Deduct the costs of purchase (including stamp duty) and sale from the gross gain.
3. Deduct the cost of any improvements made to the property (not repairs)
4. Deduct an allowance for inflation from the date of purchase until March 1998. To do this, multiply the cost (or March 82 value) by the relevant percentage on this table
http://www.hmrc.gov.uk/rates/cgt.htm
5. Deduct a percentage of the gain you have now calculated, for taper relief - see this table to obtain the percentage
http://www.is4profit.com/is4money/tax/taperrel ief/index.htm
You now have a net gain.
You have an annual capital gains Tax exemption of �8500, which will be available if not used elsewhere. Assuming this is available, you deduct it, and are left with a taxable gain, which is taxed as the highest slice of your income for the tax year.
If you have ever lived in the property as your main residence, the gain may be drastically reduced, and there are several further steps to the computation.

[Miss Zippy]

This will depend on your overall income as taxable gains are added to your taxable income for the year. Everyone has a CGT allowance, which is �8,800 for the year 2006/2007 so this should be deducted from your taxable gain. To give a simple example, if someone earning �20,000 disposed of an asset which realised them a gain of �10,000, the element subject to CGT after the annual allowance of �8,800 had been deducted would be �1200. This �1200 would be added to their other taxable income for the year, making the total income �21,200. As this would still be within the 20% tax band, the gain of �1200 would be taxed at 20%. However, if someone earning �40,000 realised the same gain of �1200 (after deduction of their annual allowance), they would pay 40% tax on this as they are higher rate taxpayers (the higher rate tax threshold being around �33,000 for 2006/2007). If you have made a capital loss on another asset that attracts CGT, then this can be offset against any gains. Furthermore, taper relief is available if you have held the asset for more than three years. Although on the face of it, CGT appears to be a straightfoward tax, it can be quite complex, particulary if you have lots of reliefs that can be claimed so it's best to get professional advice so you don't fall foul of the tax man.

[felinechums]

Thank you so much, Kags and Miss Zippy for so much detailed information. It has actually cheered me up because I realise that there are likely a lot of concessions that can be taken into consideration, and the total cost of capital gains tax may not be as much as I had at first feared. The property is a little flat that we had bought for our daughters fifteen years ago when they were late teenagers and sick of living at home. Now that my husband is retired we need to sell it, but unfortunately as we didn't have the foresight to buy it on a mortgage, we are liable for CGT.
But thanks again for your help.

[Miss Zippy]

If the property is owned jointly by you and your husband, then you can each use your �8,800 CGT personal allowance against the gain that is attributed to you (assuming you won't be using this allowance against any other gains). By the way, it wouldn't have made any difference to your CGT liability whether or not the property was bought with a mortgage.