I thought we might touch on the dreaded subject of capital gains tax this time. It’s an insidious tax and can be a bit of a dark art, with many twists, turns & arcane rules to it in the eyes of the layman.
Basically you pay capital gains tax on most items worth more than £6,000 with various exceptions. These are called chargeable assets, and the tax is calculated on the proceeds less costs, with reliefs available for some type of assets to reduce the gain.
You are also given an annual tax free allowance for capital gains, which for 2016/17 is £11,100.
Goods which have a predicted life of 50 years or less, are classified as Wasting Chattels and are exempt from Capital Gains Tax. Examples of these would be racehorses or greyhounds.
If your goods do have a predicted life of more the 50 years, the gain is calculated by either the lower of the actual gain or five thirds of the value over £6,000 (obviously?!?). For example, an Antique Picture sold for £7000, that cost £5000, would have an actual gain of £2,000, or a calculated gain of (£7000 – £6000) x 5/3 = £1,667. So the gain would be £1667.
Your main residence is not liable to Capital Gains Tax as long it was your main residence throughout the whole period of ownership If you own a second property or let out another property this would be liable for Capital Gains Tax purposes.
If you rent a room in your house, it would not be liable for CGT, and from the tax year 2016/17 you can receive a tax-free income of £7,500 under the ‘rent a room’ scheme.
Any property not covered by the main residence exemption will be chargeable to capital gains tax. As part of the cost calculation you are allowed to include the costs of buying and selling the house.
If you ever lived in the property then this proportion of the gain will be exempt. In addition, the last 18 months will be exempt if you lived in the property at any time.
If you let out a house you have lived in, you can also claim letting relief, which is the lower of the gain chargeable, £40,000, or the amount of relief you claimed for living in the house. Don’t worry if you don’t understand this as it really is as complicated as it sounds!
As you can no doubt discern from the text above; this can be a tricky area of tax and seeking professional advice is a prudent thing to do. But of course we would say that!