Landlords Tax Services Ltd - The complete tax service for the residential property landlord

Technical notes

CAPITAL GAINS TAX

• Taxation on the profit on the sale of an asset
• New low rates
• Many reliefs if the property has been your principal private residence

Capital Gains are made when an asset (such as an investment property) is sold for more than it cost. Capital Losses are made when an asset is sold for less than it cost.

Persons liable to Capital Gains Tax

UK Residents are subject to Capital Gains Tax (CGT) on all gains with few exceptions.

Those who are not ordinarily resident are not subject to Capital Gains Tax subject to certain rules. To be outside the scope of UK CGT a disposal must be made by a person after the 5th April following the date of emigration, and in a period of non residence lasting no less than five complete tax years. It follows that persons who are never UK ordinarily resident are never liable to UK CGT.

Special rules apply to persons who are UK resident but non-domiciled

Calculating Capital Gains and Losses on the disposal of investment property

The detailed calculation of the taxable Capital Gain arising on the disposal of an investment property is complex and should normally be undertaken by a suitably qualified person.

• The cost is taken as the headline price plus all legal costs, stamp duty survey fees etc.
• The sale proceeds are the headline price less the agents fees, legal fees etc.
• The gain is deemed to have accrued evenly over the period of ownership.
• Any gain accruing when it was your own Principle Private Residence is exempt. (Private Residence Relief)
• Where a gain is made on a property that has at any time been your Principal Private Residence the gain accruing in a period of up to three years (excluding the period when it was your Principal Private Residence) is exempt.
• If the property has been your principle private residence and it has been let as residential accommodation there is a further allowance not exceeding the sum of the previous two items and is capped at £40,000. (Letting Relief)
• The cost is deducted from the sale proceeds then the exempt amounts are deducted.
• Then the personal annual exempt amount is deducted.

Capital Gains (less reliefs and allowances) are taxed at 18% or, for higher rate tax payers 28%.

Treatment of Losses arising on the disposal of investment property

• Losses may be set off against gains of the same year.
• Losses may be carried forward and set off against gains of future years. They must be used at the first opportunity and before taper relief is applied.
• Losses may NOT be carried back against the gains of an earlier year (except from the year of death).
• Special rules restrict the use of Losses when they arose in a transaction involving a disposal to a connected person.
• In certain circumstances an individuals trading losses may be offset against the chargeable Capital Gains of the same year.

DISCLAIMER
© Landlords Tax Services Ltd 2008 All Rights Reserved - In an article such as the one on this page we can only give brief general guidance and cannot cover all situations. This guidance may not cover all your personal circumstances and so you should not rely on it. Before taking action or not, always do your own specific research and seek appropriate professional advice which takes into account your personal circumstances, with the full facts of the case and all documents to hand. Neither Maurice Patry F.C.A. nor Landlords Tax Services Ltd can be held responsible for the consequences of any action or the consequences of deciding not to act.