Capital gains on property sale
I received a question today regarding capital gains on a property sale.
My correspondent said, ‘A married couple can both claim the full capital gains allowance each against profit from sale, as indeed can so-called civil partners. Does the same apply to couples in joint ownership of a property?’
In a nutshell, yes.
Capital gains tax is due on the sale of properties other than your main home, and each individual has an annual tax-free allowance. This is currently £9,200.
Say you made a £100,000 profit (after deducting allowable purchase, renovation and sale costs) on an investment property which you owned equally, you would each have made £50,000.
Assuming you haven’t used your annual allowance for anything else, you can set this against your share of the gain, leaving you each with a taxable profit of £40,800.
The rate you pay on this will depend on your individual tax bands.
For example, if once your gain has been added to your income for the year, the total is within your personal allowance, you will be taxed at 10 per cent on the gain, costing you £4,080.
If the total is within the lower or basic rate bands, the tax rate will be 20 per cent – making it £8,160.
If the gain takes you into the higher rate band, you’ll pay at 40 per cent on this part of it.
And if you are already a 40 per cent taxpayer, you will pay this rate on the whole gain, giving a bill of £16,320.
However, depending on how long you’ve owned the property, you may be eligible for taper relief, which will reduce your capital gain and, therefore, your liability.
Revenue & Customs has a helpful leaflet on taper relief, which also explains what is and isn’t an allowable cost.
