i want to know how to work out what capital gains i would have to pay .?

Question

i have a owned a house for 11 years, i lived in it for 12 months then i rented it out for the next ten years. then it was paid for. i need to know the calculations please.

Answer 1

In the UK: The CGT would be the difference between the selling price, less costs, and the purchase price plus costs. Then, you would ignore the 12 months you lived in it, plus the final 24 mths you lived in it. If the resultant gain is more than 45k (I think - check on HMRC website), deduct 45k from the gain and the result is taxable. If the resultant gain is less than 45k, then there is no CGT to pay. This is a special relief for properties which have been your main residence and also let at some point.
In addition, you have an annual exemption which is about 9k this year. The balance of any chargeable gain is taxed at your highest marginal rate.

Answer 2

Ok, the answers above are mostly correct but let's give you the correct calculations.

1. Take the selling price and deduct the costs of selling (estate agents, legal fees, etc). [A]

2. Take the cost price and add on the costs of purchase. [B]

3. Find the percentage increase in the RPI between the month of purchase and April 1998. Increase [B] by this percentage to get [C].

4. Deduct [C] from [A] to give the indexed gain. [D]

5. Now deduct the private residence relief. This will be 48 months out of 132 months.Apply this fraction to the gain [D] which gives the relief [E]

6. Deduct [E] from [D] to get [F].

7. Now for lettings relief. This will be the lowest number out of [E], [F] or £40,000. Deduct the appropriate figure from [F] to give the untapered gain [G].

8. Taper relief applies to the length of time you owned the asset after 5th April 1998. At 5th April 2007 this was 9 years plus you get a bonus year as you owned the property on budget day 1998 so you get the full 10 years relief, or 40%. Deduct this from [G] to give the tapered gain [H].

9. If you have no other gains this year deduct the annual exemption of £9,200 to get the taxable gain [I].

10. The tax payable on this gain dedpends on your other income in the year. If you already pay tax at higher rate then you will pay 40% on the capital gain. If you have any of your basic rate band available then that part of the gain is taxed at 20%.

Hope this helps.

Answer 3

First of all, assuming that you owned more than one residential property, did you make a Principle Private Residence (PPR) election?

If you live in, as your home, two or more houses, you can only have one main residence at a time for private residence relief. However, you can nominate which residence is to be treated as your main residence for any period. Your nomination must be made within two years of the date you first have a particular combination of residences.

If there is a change in your combination of residences, a new two-year period begins. If you do not make a nomination, the question of which is your main residence will be determined on the facts.

If you had elected for this property to be your PPR, then you would probably have no CGT liability.

Assuming that you did not make the election, then if the dwelling-house has not always been your only or main residence, you will need to split the gain.

Contrary to what the ex-tax inspector wrote (never trust the tax man), the final 36 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling-house has been your only or main residence at some point.

When calculating the proportion of the gain eligible for relief, you multiply the gain by a fraction equal to the periods of occupation (including the final 36 months where appropriate) divided by the period of ownership.

So what we have is GAIN * TOTAL PERIODS OF OCCUPATION / TOTAL PERIOD OF OWNERSHIP = GAIN * 4 years (i.e. 12 months + 36 months) / 11 years = Total relief available.

The relief is deducted from the net gain.You then deduct the CGT allowance, which for 2007/08 is £9,200. Whatever is left is taxed at either 10%, 20% or 40% as if it were additional savings income.

To arrive at the net gain, you can deduct from the selling price the cost of the property, relevant legal and agents' fees connected with the purchase and sale and also the cost of any improvements to the property. Also deduct applicable Indexation Allowance and Taper Relief. These can be complex, so I won't go into details here. Go to the HMRC website http://www.hmrc.gov.uk and search for those two topics.

The cost of normal repairs, redecorations and property insurance (these are not the only expenses which can be claimed) should have been deducted from the rental income declared to the Inland Revenue (now HMRC) each year along with any mortgage interest you may have incurred and tax paid on the net income, if any.

That is a brief overview. If you need further assistance, you can speak to your tax office, although as you've now seen, the advice given by tax officers or ex-tax officers cannot be relied upon and there is little or no come-back. Qualified accountants, on the other hand, are required by their institutes to carry insurance to cover any mistakes they may make.

Answer 4

depends upon your tax band....but CG tax can be as high as 40% on any profit.