Capital gains tax liability if selling the property in the current tax year
What is CGT liability if she sells before the proposed budget changes come into effect?

Indexation relief = £18,585

Non-business taper relief = Full 10 years reducing rate to 24%

This means that Julie’s tax liability (excluding CGT allowance) would be as follows:

£125,000 (gain) - £18,585 (indexation relief) x 24% (non-business taper relief) = £25,540

Therefore, her tax liability would be £25,540 if the property was sold in the current tax year.

Capital gains tax liability if selling the property in the following tax year
The capital gains tax liability if the property is sold on or after 6th April 2008 (excluding CGT allowance) would be:

£125,000 (gain) x 18% (flat rate capital gains tax) = £22,500

So which produces the bigger tax saving?
Once again, in this particular instance, the investor would make more of a tax saving by waiting until the following tax year.

In this particular case she would make a £3,040 tax saving.

However, it is no where near as significant as the tax saving made by the more recent property investor!

Conclusion
There is real significance in the statement “this was a pre-budget for property investors." As we have seen in both the case studies above, holding out until the next tax year, when the flat rate tax of 18% is introduced, will bring about a tax saving for both the more recent investor and the long term investor.

However, the saving for the newer investor is far greater than for the more established investors.

Having said this, if you are considering making a sale this year or early next year then you should make a CGT calculation to determine how much tax you will be liable to pay.

What I am hearing more and more from investors is that the 18% flat rate capital gains tax payment is now “bearable”. Everyone hated the thought of giving 40% of their hard earned profits to the tax man, but this will no longer be the case from 6th April 1998 onwards.

To get 7 Free Tax Saving Strategies that are Guaranteed to

Property Tax Tips

• Do you own any shares that have become worthless? You can make a claim for “negligible value” and produce a loss for CGT purposes to set against other capital gains in the year, or in a later year.


• Do you own (or have you recently sold) a house that was occupied by an elderly relative before 5 April 1988? Did they pay you rent, or has it been let since? HMRC have recently announced a change in their interpretation of the rules for the £40K “letting relief” – they now accept that this is due on “dependent relative” properties as well as on properties that have been your own main residence.


• Another scam, this time by post – HMRC have issued a warning about fake Forms P86 that are being sent to people coming to the UK for the first time, or returning after an absence. The fake form asks for details of your bank account – the real one does not. If you receive one of these forms don’t fill it in and return it – take it to the police!


• If you have two properties that could be your main residence (such as a cottage in the country and a flat in town) it is always a good idea to nominate one of

them as your main residence within two years of acquiring the second property – this will give you the flexibility to vary the nomination later.

Your Property Tax Questions and Answers

Q. I have moved three times in the last ten tears and spent four years and three years (conveniently) in each before moving into my current address. How can I prove this? I now rent these properties on private tenancies, and continue to pay the mortgages but now have no way of proving I lived there for this period.

A. It is a question of fact which property was your main residence at any given time. Presumably you still have correspondence that was sent to you at the properties, and there are other types of evidence - the electoral register, for example, or the council tax records, and your Self Assessment returns of the rental income. In addition, if the properties you were not living in were let, then by a process of elimination, the one that was not let must have been your main residence.

Q. If I rent out my current PPR and remortgage to fund my deposit on a new property which I will then live in, and if after the remortgage the rent no longer covers all the expenses and I need to contribute towards the payments i.e. making monthly losses, can I offset this loss against future rental profit?

A. You can offset the interest on the remortgage against the rental income, provided the total of the mortgage loans is not greater than the market value of the property on the day you first let it. If this and the other expenses produce a loss, you can set this against rental income from other properties in the same year if you have any, or otherwise carry it forward to set against future rental profits.