I have a property I bought 12 years ago for 66 k . It is my…

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It's difficult to say where we will be tax wise in four years time so I'll tell you where you would stand if you sold the property in the current tax year using an income level of £30,000.

If your income is £43,875 or less then you are a basic rate taxpayer (20%). The first £6,475 of your income is tax free and the next £37,400 (maximum) is taxed at 20%. Anything over that is taxed at 40%. Income over £150,000 is taxed at 50%.

The new CGT regime works like this. The gain from the sale of a property after deduction of the annual CGT exemption of £10,100 will be added to the taxpayer's income to determine what CGT rate, 18%, 28% or a combination of the two, is applied to the gain.

So, if you have a gain of £74,000 (£140,000 - £66,000) you deduct £10,100 which leaves you with £63,900 taxable. This is added to your salary of £30,000 which makes your total "income" £93,900. As you are using £23,525 of the 20% tax band against your salary (£30,000 - £6,475) this leaves £13,875 to be used against part of the gain (£37,400 - £23,525). So, £13,875 of the gain will be taxed at 18% (£2,498) and the balance of £50,025 (£63,900 - £13,875) will be taxed at 28% (14,007) which leaves you with a CGT liability of £16,505. That's an effective rate of 22% on the gain.

As far as reducing your exposure to CGT is concerned there are a couple of simple steps you could take. If you are married and your spouse is a basic rate taxpayer then you could put the property in joint names so that when it is sold as well as getting two CGT exemptions more of the gain is taxable at 18% as opposed to 28%. You should also consider delaying the sale until you are in a tax year where your income is going to be much less, after you have retired perhaps, so that more of the gain will be taxable at 18%.

The new CGT rules have to get through the House of Commons yet. Many MPs on the government side aren't altogether happy about them so we shall have to wait and see what happens.

I hope I've given you food for thought. You should always take advice before you commit to do anything as the law could change by the time you are ready to sell your property.

Edited by Tony on 6/24/2010 at 9:09 PM EST