CGT avoidance


B

Bedford landlord

I have several investment properties which I let and I am familiar
with using my CGT and personal tax allowance to lower my cgt. However,
another investor said that by remorgaging (taking equity out) is
allowable against the gain. Is this correct and so if how long do I
have to keep the new loan?
If this is so to aviod CGT remorgage just before selling
 
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R

Ronald Raygun

Bedford said:
I have several investment properties which I let and I am familiar
with using my CGT and personal tax allowance to lower my cgt.
Then you're mistaken. Your personal allowance (£4615) does not
apply to capital gains. The CGT allowance (£7900) applies *instead*.
However,
another investor said that by remorgaging (taking equity out) is
allowable against the gain. Is this correct and so if how long do I
have to keep the new loan?
If this is so to aviod CGT remorgage just before selling
This is rubbish. Loans have nothing to do with gains. Your gain
is measured with respect to the starting and final values of the
property, not of your equity.

If you buy a house for £5 and sell it for £9 you make a gain of £4.

If you had first borrowed £4 to buy the house (i.e. only invested £1
of your own), then sold it for £9 and paid back the £4 loan, you'd
have £5 in your pocket, £4 more than you started with, so it's still
a £4 gain.

If before selling you borrow an additional £4 (moving equity out of
the house into your pocket), then sell and use £8 of the £9 sale
proceeds to pay off the £8 loan, you'd still only have £1 left over
to join the four equity pounds in your pocket. You've still made
a £4 gain.
 
G

gspark

However,
another investor
twat, shurley ?
said that by remorgaging (taking equity out) is
allowable against the gain. Is this correct and so if how long do I
have to keep the new loan?
If this is so to aviod CGT remorgage just before selling
I suggest you need to do some basic reading on CGT at the IR website.
 
J

john boyle

Bedford said:
I have several investment properties which I let and I am familiar
with using my CGT and personal tax allowance to lower my cgt. However,
another investor said that by remorgaging (taking equity out) is
allowable against the gain. Is this correct
No. Its completely wrong. The loans outstanding against an asset are
irrelevant when it comes to CGT.
 
J

john boyle

Ronald said:
Then you're mistaken. Your personal allowance (£4615) does not
apply to capital gains. The CGT allowance (£7900) applies *instead*.
Correct, the only way Income Tax comes into it is to decide the rate at
which the CGT is applied.
 
R

Robert Laws

I believe I will be liable to pay capital gains tax should I sell this.
However...

If I move into the flat first, how long must I stay to avoid paying CGT?

"No specific period of time. Less than six months is risky. Repeating the
process annually is also risky.
You must make it your principal residence. That means (to minimise the
chances of your being caught out) removing all your stuff from your parents'
place and actually living in the flat.
The tax savings makes it worth your trouble to do it right.
See to it that your tax return and other tax papers show the new address."


.... and pay your council tax from the property of course!

Robert
 
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T

Tumbleweed

Robert Laws said:
"No specific period of time. Less than six months is risky. Repeating the
process annually is also risky.
You must make it your principal residence. That means (to minimise the
chances of your being caught out) removing all your stuff from your
parents' house <snip>

Bollocks, HTF would they know you had 'removed all your stuff from your
parents house'!!
 
B

Bedford landlord

twat, shurley ?


I suggest you need to do some basic reading on CGT at the IR website.
Maybe not a twat, but worth researching further hence my thread...I
possibly won't get the loop hole answer I was after via Google
groups..thanks
 
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R

Ronald Raygun

Bedford said:
By look at the IR website you can use any surplus personal income tax
allowance before the cgt bits
No, you are mistaken. You can only use surplus from the starting
and standard rate bands.

If you have *only* earned income, then the first £4615 are free, and the
next £1960 are taxed at 10%, and the next £28540 at 22% and the rest at
40%. Interest income and dividend income do benefit from unused PA, but
capital gain income does not.

If you have *only* capital gain income, then the first £7900 are
free, the next £1960 are taxed at 10%, the next £28540 at 20% and
the rest at 40%.

If you have *both* earned and gain income, then only income above
£4615 is taxed, and only gain above £7900 is taxed, but you can't
transfer spare allowances from one to the other. But they do share
the 10% band, and earned income is counted first. Any spare £1960
band not used by earned income is available to gain income, and the
same is true of spare £28540 band. The order is relevant because of
the 22%/20% difference.
 

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