I am in process of selling a property on which there will be a sizeable CGT due can you tell me the best way to mitigate the tax. I am a 40% tax payer on my rental income.
System of Law: England-and-Wales
Hello, if you have any questions or need further clarification after reading my answer please let me know.
what this property ever your main residence or was it a second home/investment property bringing rental income
It is an investment property and I receive rental income
Thank you for your response.
As it is a second home, I am sorry to say all gain is chargeable to CGT. You will get your capital gains annual allowance of £10,600 and the balance will be taxed at 28% (you being a higher rate tax payer).
If you need more information please let me know.
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Your answer is very poor and not what I expected from an expert. I asked for ways of mitigating CGT not the percentage i will pay that information is available on any tax website. For example I have owned this property for over 20 years does tapered relief still apply to assets hedl over such a period. I have spent money on improvements during the period of ownership going back to when I first purchased the property and at that time certain items now considered tax deductable were treated as capital expenditure and not deductable but I don't have records of those expenditure of maybe 20 years ago so how do I deal with such matters and how do i find what was considered capital expenditure way back then and what wasn't. for example I believe Kitchen replacement was considered capital expenditure at that time but is not now Central Heating also was not tax deductable but I believe is now so you can see I have a problem i need your advise on and expected as much in your answer and still do.
Thank you for your response
There is no taper relief available any more so, there was no need to make reference to it in my answer.
I asked you if the property was ever your main residence ... this is looking for ways to mitigate the tax charge
In my answer, I stated all gain will be chargeable to CGT - gain is sale price less cost price including all costs incurred on improvements and costs associated with buying and selling of property. All expenditure should be supported either with receipts, invoices or some other proof of payment (bank statements etc). If you don't have records, be prepared for unsupported expense to be disallowed.
You have stated you had rental income from the property all the time... only you can confirm what was included in your property running expenses or not historically.. I don't think you can expect an expert to consider the rights and wrongs of your accounts for past years in the absence of information.
So to sum up the situation, allowable costs are costs based on facts .. the costs here would be purchase price, costs of capital improvements (supported) e.g kitchen and central heating, buying and selling agent's charges etc etc.
In accordance with requirements tax records need be retained for 6 years I have owned this block of rental properties which I have never lived in for 28 years would i reasonably be expected to retain receipts for 28 years. Final question you rightly point out as a 40% tax payer CGT is chargeable at 28%. If I earn less say £36,000 pa will I pay CGT at 18%.
You keep your accounting records for 6 years in case there is an enquiry. You have not sold the properties and not prepared a statement of gain as yet. You would be expected to retain the records that support the figures to be submitted upon sale of property. The figures may never be challenged.
As far as CGT rate applicable to the gain, you would pay the lower rate of 18% if your total income including the net gain was below £42,475.
FCCA - over 35 years experience as a qualified accountant