Re: Capital gains tax
Hi Aristotle
In order to calculate your exact Capital Gains Tax liability, I would need to know the following:
1. what area of land did you buy ten years ago?
2. Did the land have any obvious development value when you bought it?
3. what proportion of that area have you sold to date - in the £3,500 disposal pre-April 2001 and in the subsequent £43,000 disposals – and what proportion do you still own?
The purpose of these questions is to find out how much capital gains tax relief you will receive on your original £5,000 purchase. You may also be entitled to indexation relief on all or part of this cost. This means that all or part of the £5,000 original cost may be increased by multiplying by 1.384 if you bought the land in the 1989/90 tax year (ending 5/4/90) or by 1.328 if you bought it in 1990/91.
Basically your capital gains tax liability should be as follows:
Sales proceeds (£43,000)
Less sale costs (£ 3,000)
Less a percentage of original purchase cost (£5,000 x percentage?)
Less exemption (£740 for short 2001 tax year)
= Taxable Gain
Your tax liability is 20% of this figure
The amount of the liability should be between £6,500 and £7,852, depending on how much of the £5,000 original cost can be deducted and whether indexation relief is available.
There doesn’t appear to be much you can do to reduce it. Rollover relief (i.e. tax relief by buying another asset with the money) doesn’t apply to the proceeds of development land sales and, even if it did, you want to spent the money on your own home.
You will probably also have a tax liability on the £3,500 sale. If it was after 5th April last, then add it to the above £43,000 figure and calculate your tax accordingly.
If the sale was before 5th April 2001, then your tax liability should be calculated on the same basis as the above, except that the deductible percentage of the original purchase will change and also your annual exemption for that year is £1,000 (assuming you didn’t jointly own the property with someone else)
The tax is payable by 31st October following the end of the year in which you sold the property. The tax on the £43,000 disposals should be paid by 31st October 2002. If you made the £3,500 sale before 5th April 2001, the tax on that should be paid before 31st October 2001. This is a Self-Assessment tax – the onus is on you to make a return and pay the tax by the annual 31st October deadline regardless of whether or not you receive any communication from the Revenue.
Tommy