When I have found a buyer what do I do about Capital Gains Tax on the peofits from my second home?

Answer 1

If you (and the property) are in the UK, then you can ignore TaxMan's very complete answer as a complete waste of time!

Let us know whether you have ever lived in it as your only or main home, and we'll take it from there!

Edit:
OK, you have never lived in it. I'll continue with this here, so someone can correct me if I make any mistakes!

The basic rule is that you are liable to CGT on any gain you have made on the property. The net proceeds and the net cost on acquisition is after deduction of things like legal fees and estate agents' commissions. You can also deduct the cost of "enhancements". This is not repairs, but major improvements that have increased the value of the property, such as double glazing or a conservatory.

You may get indexation relief (for the effects of inflation) if you bought the property between 1982 and April 1998. From April 1998, you may get taper relief if you have owned the property for more than 3 years when you sell it. For example, if you bought the place in July 2000 and sell it in September 2006, you are only liable to pay tax on 80% of the gain.

Once you have the chargeable gain, you add other gains and deduct other allowable losses in the same tax year to work out your total chargeable gain for the tax year. The first £8,800 (the current annual exempt amount) is not taxable, and the rest is taxed at your marginal income tax rate for interest income (i.e. 40% if you are a higher-rate taxpayer or 20% if you are a standard-rate taxpayer).

Is that enough? A link to the Revenue's CGT guide is given below.

Answer 2

First of all, let's discuss exclusion.

If it is truly a second home and you didn't live in it for at least 24 months in the last 5 years, then you will not get any tax break in the form of the exclusion that you hear people talking about. However, if you did live in the house as your main residence for at least 24 months in the last 5 years (and, presumably you also owned the house for at least 24 months at any time in the last 5 years), you are entitled to the exclusion. The exclusion is $250,000 for singles and $500,000 for married couples that both meet the residency test.

OK, now that you know about the exclusion, here is how you figure your gain. Take the selling price minus your original purchase price, minus the costs you paid to purchase the house, minus the costs you paid to sell the house, minus any upgrades you made to the house. That is your gain. If you qualify for the exclusion, subtract that from your gain (don't go below zero) to get your final gain. This final capital gain is added to your other gains and losses on your tax return (if you have any). Any remaining capital gain is treated as long-term capital gain and ultimately taxed at 15% unless you have a very low income in which case it is taxed at 5%.

Purchasing and selling costs include those things you couldn't get tax credit for at the time you bought/sold your house. They include realtor's fees, termite inspection, etc. Look on your HUD form and see what expenses you incurred. Do NOT include those that you can write off like Real Estate taxes paid or mortgage interest or points a.k.a. loan origination fees.

Example: you paid $100,000 and sold for $200,000 and paid $10,000 in fees when you sold and $2,000 in fees when you bought and don't qualify for any exclusion and otherwise had $4,000 of long-term capital loss and $3,000 of short-term capital loss (selling stocks or whatever). You also installed a new roof for $6,000 and repaired your furnace for $500 and replaced your carpeting twice...the first time for $1,000 and the second for $1,500.

Your house capital gain is:
$200,000 - 100,000 - 10,000 -2,000 - 6,000 (roof) - 1,500 (carpeting) = $82,000. You can't subtract the furnace because it was a repair, not an upgrade. And you can't subtract the first round of wall-to-wall carpeting because it no longer exists (replaced by 2nd round of carpeting).

From that, you will subtract the short and long term capital gains from selling stock to get to a final capital gain of $75,000. From that, take 15% to get a tax liability of $11,250.

Answer 3

you have to declate the gain on your tax return for the 06-07 tax year if you sell it before april 07.
you than have more time(Jan 08 I think) to pay the tax owed. You will pay 40% of teh gain after costs, however you will get taperrelief if you have had it for over 5 years. If you have ever lived in it for a period of time as your main residnce there are other tax reliefs available
Good luck

Answer 4

TAX LOOP TAX LOOP...

Say that you lived there, then it wasnn't your second home and you can avoid paying it...

Better still, don't sell it, re-mortgage it...

Answer 5

Reinvest. You have a year to do so.