Can anyone calculate Capital Gains Tax on a rental property?

[SlightlyJaded]

Just that really.

I am useless and have been on the .Gov website and read how it's worked out but still can't do it.

I can come to the figure but not sure how to deduct for the years that it was my sole property/home, before I rented it out.

Is there an easy to understand formula?

You need a good accountant who is good for property and capital gains tax , it's a very common area , well worth his fee in what you can save , my experience was slightly different , in that it was a business with part domestic element , but a good accountant will be worth his weight

thanks @crazylikechocolate.

Is it not a 'set in stone' calculation though? Or would an accountant be able to off-set stuff that I hadn't thought of?

I sold mine at the end of 2019 and calcuated myself.

First, work out the profit. Are you a 20% or 40% tax payer? If the former, you'll pay CGT at 18%, the latter it's 28%.

You can deduct Private Residence Relief if you lived there, if not, you have to pay CGT on the whole private, minus your annual allowance (which I think is about £12k but it's easy to check) plus any expenses you are able to claim for including estate agents’ and solicitors’ fees, stamp duty paid when the property was purchased, surveying and valuation costs, costs linked to improvement work – e.g. an extension.

Hope that helps

Private Residence Relief is a slightly complex calculation but it's basically the profit split across each year and then the years you lived there, you can deduct before you work out the tax due.

Sorry, forgot to say you can add nine months relief onto the PRR as well!

Just to add if you sold after 5 April 2020 you have to report and pay the gain within thirty days of completion.

Thanks.

I am freelance to my tax rate jumps between the two rates. Will they go with the last tax return or current year?

Yes it's the calculation around the time I lived there that's confusing me.

Bought in 1992 for £86000
Sale price would be approx £650000

Lived in property from 1992 - 2006
Rented out from 2006 until now

Assuming an average of £7k per year on agency fees, upkeep, insurance amd rennovations

Assuming average agency/solicitors etc fees associated with selling

Anyone able to give me a rough ballpark?

I haven't worked at all since March due to Covid so would be in lower tax bracket this year but higher for previous two years.

Thanks!

@ClashCityRocker

Just to add if you sold after 5 April 2020 you have to report and pay the gain within thirty days of completion.

Very good point!

@SlightlyJaded

Thanks.

I am freelance to my tax rate jumps between the two rates. Will they go with the last tax return or current year?

Yes it's the calculation around the time I lived there that's confusing me.

Bought in 1992 for £86000
Sale price would be approx £650000

Lived in property from 1992 - 2006
Rented out from 2006 until now

Assuming an average of £7k per year on agency fees, upkeep, insurance amd rennovations

Assuming average agency/solicitors etc fees associated with selling

Anyone able to give me a rough ballpark?

I haven't worked at all since March due to Covid so would be in lower tax bracket this year but higher for previous two years.

Thanks!

Agency fees and upkeep etc cannot be claimed, these should have been taken off your income tax while the property was rented. You can only claim for improvements to the property eg an extension.

Profit is £564,000

Owned house from 1992 to 2021 - need to know the months as well as this will form part of calculation.

Convert this timeline into months and add nine months on.

Divide £564,000 by the number of months you've just calculated = x

Write down total number of months as residence (a) and total number of months as rental (b).

Multiply a times x and b times x.

Deduct a from £564,000 and you're left with gross profit.

Then deduct personal annual CGT allowance and any costs included in the list I gave you earlier. Anything to do with running of house while rented or maintenance/repairs cannot be included.

What's left is your net profit. You pay 18/28% depending on your income tax rate in the tax year you dispose of the property.

Now that there is the 30 day rule, I'm not sure what happens if you don't yet know your income tax rate. It may be that you can reassess your CGT in your self assessment and be refunded any overpaid tax.

thank you @loveisagirlnameddaisy

Going to try and use your formula. Really appreciate the explanation.

The income tax % is not straightforward. The profit gets added to your income. Whatever part of the 20% slab is available is taxed at 18%. The remaining goes into your 40% slab and that gets taxed at 28%.

Eg. If your income is 33k, you have 10k of the base rate unused (just approximating, please check basic rate slabs). This gets taxed at 18%. The remaining will go into your 40% slab so taxed at 28%.

There. is an online calculator by HMRC. That should help.

Working on similar at the mo. You enter your details into the government gateway portal and are given a code, which allows you to pay HMRC. You don’t need an accountant as it’s a pretty basic calculation. Essentially, as above, difference between purchase and sale prices, minus any costs associated with both purchase and sale, then the relief you get on the months you live there + 9 months (used to be more). You get relief of £12,300 for this tax year. The government gateway calculator asks what your salary is predicted to be this year and then gives you an answer, broken down into what you pay at 18% and what you pay at 28%.