Been thinking of selling down but means a hefty CGT bill whilst we are both still working. We have an IP in the UK which, although cash flow positive by a fair bit, if we sold would incur a preyty big paper loss. I say paper loss as we bought it in 2000, it rocketed up in value up to 2007 then got smashed about 30% in GFC and hasn’t moved at all since. So, it’s still worth more than double what we paid for it 18 years ago but it’s actually worth 20% less today than it was in 2007, which is the year we left the UK and it became an IP. It’s a good cash flow IP as the mortgage interest rate is less than 1%. Our plan with it was to keep it forever and once the mortgage is paid off it would just be a nice little extra income stream at retirement. A thought just occurred to me though…. Am I right in thinking that if we sold an IP today that had gone up in value, the CGT would incur an amount of tax that is payable in the current financial year and be added to our income, tax then paid at the resulting tax rate? BUT if I sell an IP that has made a loss, that capital loss does not affect your annual income and is quarantined until a future year where a gain is made in he same asset class? Is my understanding on that correct? If it is, is there a limit on haw many years you can carry forward the capital loss? If so, I may be better to sell the UK property first, even though it’s a good yield play, but that paper capital loss would give me a nice tax buffer to soak up the capital gain if I sell one of the IP’s that’s had good growth to date maybe next financial year or the year after? Cheers.
Can be different asset classes but yes a gain can be offset by a loss. Losses carry forward until offset, but are lost after death so you would want to use them up soon just in case. Why not wait and sell both in the same tax year? ps if you are self employed you could use a few strategies to reduce CGT anyway.
Thanks @Terry_w selling both on the same tax year would be fine, problem with the UK one is the market there is very flat, it could literally take 12 months+ to sell it so my initial thoughts were to get it ready for market and for sale, wait until it's gone (gazumping is legal and prevalent, selling houses in the UK can be a headache until it's settled), then decide what to do from there. If we tried to sell an IP here with a gain and the UK house with the loss in the same financial year, the risk is the Aussie house sells and the UK one doesn't, then we have to take the GCT hit on the Aussie one and carry forward a loss on the UK one that may never be used up on something else.
The AUD value at time of sale based on CGT cost in AUD is important. The lost CGT concessions are significant
No doubt @Paul@PFI - AUD to GBP was 2.36 when we left, that makes the value in then AUD way more then than it is now when you compound the actual loss of about 20% backwards in real value and the current exchange rate of around 1.83. It makes quite a bit of difference to the paper loss for offsetting the gains here.
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