Exemption from capital gains tax

Required Reading


  


Exemption from capital gains tax


Again, this concession -the exemption from capital gains tax of the profits made from selling your main residence -does not apply to profits made on selling a second home or a holiday cottage.

Even if the concession were ever to be withdrawn (which seems unlikely), home-buyers now are not likely to be hit hard by the tax, as there are other provisions to exempt 'inflation only' gains.

Mortgage Interest Relief at Source

When Napoleon was Emperor of France, he decided to send out search parties to find if there was anyone in the whole of the country who wasn't aware of the fact.

Within three weeks, it is said, his soldiers came back with a woodcutter, living just outside Paris, who hadn't even heard of him -or of the French Revolution either.

I suppose it's possible that there are people who have managed to escape hearing about the dreaded MIRAS, however improbable it might seem. The letters stand for 'Mortgage Interest Relief at Source'. MIRAS was finally abolished in 2000.

The scheme was set up by the Government so that it could cut down on jobs in the Inland Revenue. Instead of having hundreds of employees spending their time working out how much tax relief to allocate to each borrower, according to the size of his loan and tax rate a process that had to be undertaken afresh each year in the case of repayment mortgages and probably two or three times a year for everyone as the mortgage interest rate changed -the Government decided it would be a great deal easier if it got the lenders (i.e. the building societies and banks) to do the job instead.

This change has not taken place without its traumas. As we shall see in Section 5, most building societies decided they simply could not cope with the extra work involved. They accepted the burden only on the condition that they altered the whole structure of the repayment mortgage.

Previously, the repayment mortgage involved paying a constant gross amount each month, but effectively an increasing net amount as the years went by. This came about because each payment involves two elements: interest and capital.

Tax relief is available only on the interest element; in the early years, most of the payment is interest and only a little is capital repayment.



Read:100 mortgages

The end of tax relief and the modern mortgage


We have mentioned that the relief is available only to borrowers buying their principal residence. However, the relief is extended also to people who have to live in a place that is provided by their employment (caretakers are an obvious example); they are allowed to buy a separate home of their own retirement, perhaps.

You may also benefit from the relief if you are buying the property for an `elderly or infirm' relative, or for your divorced spouse. All this, however, counts towards the single limit of £230,000: you do not get two or three lots according to how many places you are buying.

As with other aspects of the tax system, the rules on tax relief actually discriminate against married couples. Single people are . . .... see: The end of tax relief and the modern mortgage


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