From: "Richard F" 
Newsgroups: uk.finance
Subject: Re: Capital Gains Tax
Date: Fri, 4 Jun 2004 19:00:27 +0000 (UTC)


"Ronald Raygun"  wrote in message
news:v60wc.163$QS5.5636249@news-text.cableinet.net...
> Richard F wrote:
>
> > I own a house which I purchased for my Daughter to live in at University
> > and to our surprise it has increased in value from £25k to £125k over 3
> > years. The house is jointly owned by my wife and I.
>
> "by my wife and me".
>
> > We are now thinking of selling it giving us a capital gain of around
£50k
> > each less the allowable expenses etc.
> > My question is can we both take a year off from work, earning no salary,
> > and add our income tax allowance as well as the Capital Gains Tax
> > allowance to reduce the tax paid on the £50k?
>
> Others have already pointed out that you can't add unused personal
> allowance (£4745) to your CGT allowance (£8200), but one might think
> the 10% bands could be put to good use (but -- see below -- in reality
> they cannot).
>
> > Do we have to pay National Insurance?
>
> There is no NI on capital gains, but if you want the "Lotus Eater" years
> to count as qualifying years towards your state pension, you will need
> to make voluntary (Class 3) NI contributions of £7.15 a week if you reduce
> your earned income below the LEL of £79 a week.
>
>
> This taking a year out idea is all very well if you're thinking of
> easing yourself into retirement anyway, but from the point of view of
> saving money it's actually a stupid idea.  Why?  Read on.
>
> Suppose your income is such that you are not into the higher rate
> tax bracket.  Suppose you're £10k below the higher rate threshold,
> and suppose that your taxable gain after expenses, taper, and allowance,
> is £40k.  That means £10k of your gain will be taxed at 20% and £30k
> at 40%.  If you could reduce your income by £10k, this would mean
> £10k more of your gain would be taxed at 20% instead of 40%, saving
> £2000 off your CGT bill.
>
> But don't forget, that you're still losing the net income corresponding
> to the £10k by which you reduced your gross earned income.  The £10k
> gross were worth £6700 net, and in order to save £2000 CGT you're actually
> losing those £6700, and as a result you're £4700 out of pocket.
>
> Still think it's a good idea?
>
Thank you for your comprehensive reply and the grammar lesson.

This is my first question to the group, although I am an avid watcher.

I am easing into retirement and my pension, if I choose to take it in the
same year that I sell the house, will bring me into the £20k income bracket.
But I have the option to defer the pension and I can take a 25% lump sum
(say £100k) which would bring in about £4k if invested.

Life is very complicated. Time for a G&T while I contemplate my options.

Thanks again

Richard