Capital gains tax on second home.

[deste]

I know this has probably been done before but I am getting conflicting advise. I bought a house 11 years ago for £14700, it was paid cash. MIL has stayed in it rent free all that time, I have never lived in it. It is now worth around £100,000. I would like to sell it soon and buy another property but from what I can gather I will have to pay so much in CGT that I won't be able to afford to buy another. About £13000 paid to upgrade, (not by me) and I am retired on a state pension, just started in business but not earned much yet. Does anyone know what I would be due CGT? Thanks.

Advice.

I was going to let you know about dependant relatives exemption, but I now realise that the purchase of the property was too recent for that to apply.

You would almost certainly have to pay Capital Gains Tax when selling the house. Do you know how this is worked out?

I think this right, but I'm not an expert:

It is worked out on the difference between buying price and selling price.

The cost of buying and selling can also be deducted from the calculation ie estate agents and solicitors fees.

The annual tax free allowance is £10,600, so that amount of gain is deducted too.

General maintainance cannot be deducted but major improvements can. Not too sure what happens if you weren't the one who paid for improvements.

Capital gains is then charged at either 18% or 28% depending on what rate tax payer you are (I think).

Thankyou. That is similar to what I have been told but when I read other previous posts about a house that cost double mine they ended up paying a couple of thousand pounds.

It may be worth paying a good accountant for an hour of their time on this as sometimes you can designate a second home as main residence and avoid lawfully CGT although you have not lived in it for 11 years so that may not be possible.

Is it only in your name ? You should be able to claim annual allowances retrospectively (worth calling HMRC to check how much and over how long) but it won't offset the entire gain, the difference being where you are liable for CGT.

It is in my name only. I understand I have to pay something it's just the fact I won't be able to buy the house I want.

I will go and see an accountant.

Yes do. I know that married couples with two homes and those divorcing have a period to decide which house is the main residence. If you look at all those MPs claiming and switching second home to prime homes to reduce CGT you can see that there is quite bit of scope and if you have had it for 11 years there may be some other older reliefs perhaps? There used to be an indexation relief setting off against inflation rises which has gone and you earn very little so some of the gain may be taxed at 18% and some at 28%. Worth taking some advice. I think the best hope is that you have various unused allowances to set off against any gain to keep the tax lower.

HMRC
"Owning more than one home

If you live in - not just own - more than one property you can 'nominate' one as your main home. Write to HM Revenue & Customs (HMRC) to tell them which one you nominate as your main home. You must sign your nomination. See the link below to contact HMRC.

You must make your nomination within two years of the date from which you change the number of properties you live in. You should make a new nomination whenever the number of homes you live in changes.

For example, you buy a second home in May 2012. You can nominate either this or your usual home as your main home, but you must do so by May 2014.

HMRC will decide which property to treat as your main home based on the facts, unless you tell them which you nominate. This may affect the amount of Capital Gains Tax you have to pay."

Thankyou for taking the time to answer. Our first home is worth quite a bit so that would be the main residence. I have joint names on that. I doubt I have used any allowances so hopefully that should help.

I don't think can offset unused allowances from previous years now, just the one allowance of £10,600.

The house that cost double yours may have been because the difference between buying and selling price was smaller than yours. Theirs may not have increased in value as much as the one you own.

That's true. You used to be able to roll forward one year of unused capital gains tax allowance but it sounds like has gone and if it were in joint names with a spouse there would be 2 x 10,600 but sounds like none of that helps. The bottom line is we are utterly taxed whatever we do and perhaps people are better advised to spend their money on wild women and song as if you keep money and save it up it is only confiscated from you by the state.

If I put it in joint names would that make a difference. The only thing is I would be the low tax rate and he would be the higher rate. I also wondered if I gave it to my DD and she then sold it and gave me back the money or is that a scam too far.

Think you'd need to hang onto it longer to claim in both names, equally a recent transfer would be looked into.

I think the thread really concludes that it would be good to pay for an honour of an accountant's time on this as there are things you can do (see MPs and second homes articles on line) that can reduce CGT lawfully and even if the accountant says none of them work it would be good at least to have looked into it to save 18% or 28% of an £80k gain or whatever it is.

I think it roughly would be £90k profit, less £10k annual allowance, perhaps less some upkeep costs if you spent them - if you dd not then perhaps the person who did if your spouse has in equity become a kind of owner - you holding part on trust for him and then may be it is fair to put it into joint names and claim two allowances even if his share is just the percentage which yields him £10k tax free profit. Anyway sticking with sole owner £90k less allowance = about £80k to be taxed and then I think i is 18% up to the upper rate tax which is about £40k so half taxed at 18% and the other half 28%. I think they divide the tax rate into bands like that within one tax year rather than your earned income is very low so all the gain is taxed at 18%.

So roughly £40k x 18% = £7200 and £40k x 28% £11,200 = £18,400 CGT unless some of the above lawful tax planning ideas can work. You can also take off your selling costs, estate agent and lawyer fees etc from the gain before you apply the tax to it.

Thankyou Zenia for all the trouble you have gone to, and everyone else. We were away for the weekend and had no Internet access. That seems to work out at less than I was told originally.

Take professional advice from an accountant, it is still possible to reduce the liability by thousands of pounds or possibly eliminate it.

For others reading this:

1. Always take advice from an accountant before taking property decisions other than on a single home you live in. If you don't do it then, do it as soon as possible as the sooner you do it the more tax you are likely to save.

1. Never let anyone else spend money improving a property you own (unless it is your Principal Private Residence) - YOU are likely to end up paying tax on the increase in value and are not entitled to take into account the cost of the improvement.

I agree about going to an accountant. A couple of points though: putting in in joint names with anyone other than a spouse/civil partner will not work as that will be treated as if it were a sale at market value. Also, HMRC has taken a number of cases to the Courts over the last couple of years where people have claimed a property was their principal private residence. It is a hot topic with them (probably following the "flipping" publicity). If you are advised to do things so that you can claim PPR you should check that your accountant is fully up to date on these cases.

That sounds wise. I think my sums of about £18k CGT are likely to be about right but with deductions for sale costs. Might be worth exploring if the person who paid for the repairs became some kind of owner so you can use two allowances. Also check your past. I have unused capital losses (and I never make gains sadly) but they are there and if I had a year of making some capital gains I can deduct them. So if you lost money on sale of shares or another property in the past you might be able to use those to reduce the CGT.

The person who paid for the improvements (in lieu of rent) is unfortunately very ill and not in a position to do it. Our homes will not be flipped as the other has made an even bigger profit on it. To be honest the improvements will not make a difference to the present value of the property, just things you would expect from a home, new windows and external doors, bathroom and the kitchen. Nothing has been done for about 6-7 years. The house still needs work done to sell it, mainly decoration.