Joyce asks: “Hi, I am a non-tax payer as I’m below the income tax thresholds. However, I need to sell my buy to let property, which I’ve never lived in. My profit would be approx. £100.000. What would my capital gains bill be please?”
Question 23 – Do I Pay Capital Gains Tax If I Don’t Pay Income Tax? – Shownotes
Today’s question comes from Wookovski:
I am a non-tax payer as I’m below the income tax thresholds. However, I need to sell my buy to let property, which I’ve never lived in. My profit would be approx. £100.000. What would my capital gains bill be please?
Thanks for your question Joyce.
We’ve answered a few questions already on capital gains tax on the blog and on the podcast in the past:
However, these articles assume that you pay income tax, so we need to address this part of your question Joyce.
Capital Gains Tax – Possible Reliefs
Firstly, it’s important to note (as referenced in these articles) that you won’t be liable to the capital gains tax deductions of PPR or letting relief as the property has never been your primary residence. Sorry about that!
Therefore, your taxable basis will be the profit (£100,000), less your annual exempt amount of £11,100 for yourself and another £11,100 if you have a spouse or civil partner.
Therefore, assuming that you are not married, your taxable amount would be £88,900.
Capital Gains Tax – Other Costs
Also, don’t forget your “other costs”. This will include all costs related to acquiring or selling the property, including legal expenses, estate agent fees and any other related costs.
Additionally, you can include the costs of improving your property. These need to be costs of improvement to the property, rather than regular maintenance. Therefore, any costs related to adding a conservatory to the property could be deducted, but decorating the kitchen could not.
There is a fine line between these two, but generally if the cost is related to something that improves and adds value to your property on a one-off basis will be deductible.
Capital Gains Tax – What Rate Will You Pay?
So, once you’ve worked out your final taxable amount, we now need to determine the capital gains tax % rate that you will pay. The full explanation from the gov.uk site is available here.
The easiest way to explain is that you will pay 18% on everything between the amount that you earned from an income perspective and the upper end of the basic rate income tax band of £31,785.
So. If you only earn £5,000 a year, you’ll pay £26,785 at 18%, then the remainder of the taxable amount (£88,900 – £26,785) of £62,115 at 28%. Therefore, your capital gains tax bill would be £22,214 in the example where your income is £5,000 a year.
Do I Pay Capital Gains Tax If I Don’t Pay Income Tax? – Conclusion
.So, to answer your question Joyce, you’ll need to work out your taxable basis:
- Less “other costs”
- Less annual exemption amount (+ spouses’ if applicable)
Then, you’ll pay the upper rate band of £31,785 less your income for the year at 18% and any remaining amount over that at 28%.
As always, this is not personal and regulated financial advice, but rather our understanding of your problem for the perspective of understanding for the podcast audience. We would therefore recommend that you consult a regulated taxation specialist for your specific circumstances.
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