Ask Money: how do I arrive at the right capital gains calculation?

Sean Jones, financial planner at James Hambro & Partners helps a reader with a CGT-related query.

October 17, 2019

In 2011, my civil partner inherited his mother’s house, which had a probate value of £89,000. In December 2018, we transferred the house into joint ownership between my partner and me, using a solicitor. We have just sold the property for £125,000. The house was rented between being inherited and being sold. We spent about £3,000 on central heating and electric upgrades when we acquired it. 

I have tried using the government’s capital gains tax calculator, but am stumped. Is my share of the gain calculated by taking half of the selling price (£62,500) minus half of the value when my husband inherited (£44,500), minus half of the improvement costs (£1,500), minus half the selling cost (£400), minus my capital gains allowance of £12,000?
Phil Wagg, by email

Sean Jones, financial planner at James Hambro & Partners, replies: You do not pay capital gains tax (CGT) on assets gifted to you by a civil partner, wife or husband. However, you may have to pay tax on any gains on disposal. As a half share in the property was gifted to you by your civil partner, you acquired your share of the property at half the probate value: £44,500. The gain will be calculated from when you or they first owned it, so 2011 in this case. You can deduct costs of buying, selling or improving the property from the gain; for example, estate agent fees, solicitor fees and costs of improvements, such as building an extension. Maintenance costs cannot be deducted. I note that you did not include any costs associated with acquiring the property, although a solicitor arranged the transfer of half the ownership to you.

The gain is the difference between what you paid and the amount you received when it was sold. On the basis of your share being sold for £62,500 minus the acquisition cost of £44,500, minus all costs including improvements of £1,900, you are left with a total gain of £16,100. The CGT annual exemption is £12,000, so assuming you have not used any of this year’s exemption already, the taxable gain is £4,100. For residential property, the rate at which you pay CGT is 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. A basic-rate taxpayer, earning £30,000, with a full income tax personal allowance, would pay CGT at 18%, so the bill would be £738. The bill for a higher rate taxpayer would be £1,148.

If you need help with a tax, pension or financial planning problem, please email: moneyobserver.ed@moneyobserver.com

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