Capital Gains Tax

[biryani]

Not sure if this is the best place to put this query.

I have a property which I'd like to sell to free up capital. It's worth about 170k with a 20k mortgage. I want to reinvest into other properties but I'm not sure where I'd stand on Capital Gains. I''ve read somewhere that if you reinvest immediately, you can avoid some or all of it. Am I right?

[specialsubject]

only the HMRC site is authoritative, and I don't recall seeing anything about this.

you pay the gain, less your CGT allowance, less various other allowances. If you've ever lived in it that may reduce the bill as well.

[pootlebug]

It is called reinvestment relief. You don't avoid the tax, just delay it until you sell the thing you invested it in.

It does depend on your assets meeting certain criteria as business assets though www.hmrc.gov.uk/helpsheets/hs290.pdf

If you don't meet those criteria, you need to fully check out what other reliefs and allowances you get. The size of the mortgage is irrelevant - it is when you bought it and for how much, versus net sale proceeds, that matters.

[lalalonglegs]

As pootle said, the property has to be registered to a company for this sort of relief. Has the property ever been your primary residence? That will get you lots of extra reliefs? Are you married - can you put some of the property in your spouse's name and then s/he will get a CGT allowance as well.

[lalalonglegs]

oops, no ? after reliefs

[biryani]

Thanks all. Really useful stuff.

[biryani]

Lala- property has been my primary residence from 1988 to 2000. It's been rented ever since. The mortgage is up this year and I' d like to reinvest in more property rather than have the capital sitting there doing nothing.

[lalalonglegs]

In that case, I think you can say something along these lines:

Property was bought in 1988 for (say) #50k
Property was sold in 2013 for #170k
Profit - #120k

Period of ownership was 25 years
Period of rental was 13 years

120k divided by 25 years = 4,800 per year growth
You lived in property for 12 years so 57.6k is exempt
PLUS if you have lived there as your home, the final three years of ownership are exempt (don't know why) so that gives you an extra 14.4k PLUS you get an extra 40k for capital growth.

So, just using these allowances, you will have (using my notional price of #50k as the buying price), a tax free sum of

original 50k plus 57.6k plus 14.4k plus 40k plus your CGT allowance of about 11k = 173k so I don't think you will have anything to pay at all. (nb: not a tax expert but recently sold a rental property myself so have a sketchy idea of how it works. You can check it all out on this hmrc page

[biryani]

Cheers-that's so helpful!

[tricot39]

It is as good as lala says!

Definitely the last 3 years of ownership are exempt if it was once your main residence. You maybe get other free years which are considered allowable absences depending on your situation. The 40k mentioned i think is called lettings relief.

You have to fill in a tax return with the supplementary pages for property income (download separately) even if you calculate no cgt is due.

Unless you have done amazingly well you will probably have nothing to pay. I once met a tax advisor who said it was her ambition to be wealthy enough to pay some cgt!!! In her opinion normal people are rarely eligible if they do their sums right.

Good luck!