Sunnypad wrote:My mum is selling an investment flat.
She is a basic rate taxpayer so my understanding is that
She has an allowance of £12,300 on a capital gain
She will therefore pay 18% on the gain, minus the £12,300. Is this correct?
Your intended meaning may be correct, but I cannot tell for certain, because "18% on the gain, minus the £12,300" can be read either as "(18% of the gain) minus £12,300", i.e. subtracting £12,300 from the tax, or as "18% of (the gain minus £12,300)", i.e. subtracting £12,300 from the gain, which is considerably less generous! So to be clear, I'm afraid the correct treatment is that less generous one: the £12,300 is to be subtracted from the gain.
In more detail, she should:
1) Calculate the gain on the flat. That is equal to the 'disposal proceeds', which are the basic amount that she sold the flat for, minus the 'allowable costs', which are:
* The acquisition cost: the basic amount she bought the flat for (or if she didn't buy it, generally its market value at the time she acquired it - e.g. the probate value if she acquired it by inheritance).
* The 'incidental costs of acquisition': any fees, taxes, etc, that she paid purely in order to be able to acquire the flat, such as stamp duty on the purchase and fees charged by her solicitor or other conveyancer.
* The 'incidental costs of disposal': any fees, taxes, etc, that she paid purely in order to be able to sell the flat, such as estate agent fees and fees charged by her solicitor or other conveyancer.
* Enhancement costs: Capital expenditure on the flat, to the extent that it's improved the flat from what it was when she acquired it to what it was when she sold it (i.e. 'maintenance' capital expenditure that only cancelled out damage or wear & tear that happened during the time she owned the flat can not be subtracted).
* Costs of establishing her legal title to the flat - i.e. that she did legally own it. I'd imagine this is quite rare - but for example if she inherited it but had to pay solicitors to establish that she was the person who inherited it rather than someone else, those solicitors' fees should be an allowable cost.
2) I'll assume that the flat was an investment property all the time that she owned it, rather than her ever having lived in it - if that assumption is wrong, the gain will probably need adjustments. I'll also assume that she didn't make any other capital gains or losses in the same tax year - if that assumption is wrong, she'll need to add the gains and/or subtract the losses. And I'll assume that she doesn't have any capital losses brought forward from previous tax years - if that assumption is wrong, she might well be able to subtract those as well (but ask about them, because the rules are a bit too complicated to fit well into this explanation!). After applying these adjustments if necessary, she'll be left with a figure for the year's total net gains. (Or conceivably but I'd guess pretty unlikely, a negative figure indicating total net losses. If that does happen, she doesn't owe CGT for the year and her CGT allowance isn't usable, so don't bother about the following steps, and she can carry those total net losses forward to future years.)
3) If the total net gains produced by step 2 are less than the CGT allowance of £12,300, the CGT allowance reduces them to zero (with any left-over CGT allowance not being usable) and she'll owe no CGT. Otherwise, subtract £12,300 from the total net gains.
4) Determine how much of her Income Tax basic-rate band she hasn't used. If the remaining gains after step 3 are less than that amount, she'll need to pay CGT of 18% of those remaining gains; otherwise, she'll need to pay CGT of (18% of that amount) plus 28% of (those remaining gains minus that amount).
Gengulphus