Many of our clients are likely to have been affected by the recent emergency budget. Apart from the increase of VAT from 4 January 2010 to 20%, major changes were announced in relation to housing benefit caps and limits and there were changes to child tax credits which are cut for those on more than £40,000 per annum. Many benefits including child benefit were frozen.

If you sell a house for a profit and it is not your main residence, you could be affected by the rise in the Capital Gains Tax (CGT) rate.  The ‘gain’ is calculated as the difference between the net sale proceeds (i.e. after deducting the costs of selling) and the cost of purchasing the property (less the costs of buying).  The costs of any improvements made to the property are also taken into account in calculating the gain.  Every individual has an annual tax free allowance of £10,100 but if the gain is more than that amount, CGT is charged on the gain. 

CGT remains at 18% for anyone paying the lowest rate of income tax but has increased to 28% for anyone paying more than the basic rate.  This increase is not as bad as feared as there was speculation ahead of the emergency budget that CGT would increase to as much as 50% to match the highest rate of income tax.  It is important to be aware that the CGT rate is calculated by adding the gain made to the individual’s annual taxable income. So someone on £5k a year income making a £20,000 capital gain will simply pay the lower rate of tax on the gain. Someone on £20k a year who makes a £50k gain is going to pay CGT on some of that gain at 28%. Just because they are a lower rate tax payer does not mean the entirety of the gain is taxed at that level.

If you would like advice on selling your property or on Capital Gains Tax issues, please contact us on 01639 645061.