Capital Gains – Am I in Cloud Cuckoo land?

by Readers Question

19:39 PM, 24th October 2014
About 4 years ago

Capital Gains – Am I in Cloud Cuckoo land?

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Capital Gains – Am I in Cloud Cuckoo land?

We are trying to work out our Capital gains liability on our buy to let property as are planning to sell it. Capital Gains - Am I in Cloud Cuckoo land

There does not seem to be any clear information saying that we can take off the mortgage (not the cost of the mortgage) off the basic sum.

We bought the property for £56K on a £51K Mortgage and hope to sell for £200K.

£200K-£56k = £144K – paying mortgage back (£51K) =£93K liability before other deductions.

Am I in Cloud Cuckoo land?

If so why should we have to pay capital gains on £51K interest only mortgage?
(I understand from my research about rent relief, CG allowances, costs, etc).

Thanks

Martin

 



Comments

Mark Alexander

19:45 PM, 24th October 2014
About 4 years ago

Hi Martin

I will happily answer you capital gains question but I'm far to polite to make comment on your location 😉

If you purchased the property for £56,000 and you sell it for £200,000 then your gain is £144,000.

How much you borrowed against the property is completely irrelevant.

You've done rather well making £144,000 profit off the back of your own investment of just £5,000 don't you think?
.

Mick Roberts

8:59 AM, 25th October 2014
About 4 years ago

Yes, in my naivety years ago, I thought similar things to this, arguing why the Taxman wouldn't let me have the capital part of my mortgage payments off my tax bill.
And then as Mark knows, some get caught in Capital Gains Tax trap, by remortgaging loads of times before sale ie. in your case, they could have mortgaged up to 190k & said 'Taxman I have only made £10,000, clear off'.

But as Mark says, it's your initial purchase price we need to think about. Otherwise we'd all be mortgaging to the max just before sale.

Mark Alexander

9:04 AM, 25th October 2014
About 4 years ago

Reply to the comment left by "Mick Roberts" at "25/10/2014 - 08:59":

Indeed Mick, and there's a discussion thread demonstrating a classic example of a Property118 reader who thought he had trapped himself into exactly that problem.

Thankfully, he seems to have managed to turn things around for himself - see http://www.property118.com/trapped-high-gearing-cgt/66488/
.

Carol Thomas

15:49 PM, 27th October 2014
About 4 years ago

The best idea - get a good accountant! They are not always expensive and they inevitably save you money! I actually ended up paying no CG on a property I bought in 1993 for £37k and sold in 2014 for £137k. Granted, we lived in it for three years along the way, but the accountant knew all the angles. Well worth the money. Good luck.

Yvette Newbury

16:55 PM, 27th October 2014
About 4 years ago

Capital Gains tax is actually straight forward, make sure you go to the HMRC website and read the rules from them and not get confused by information on the internet. There is plenty of help available directly from HMRC, you could start here: http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm

Martin Roscoe

18:07 PM, 27th October 2014
About 4 years ago

Hi Guys,
Many thanks for all your comments to my naive question, I realise we are pretty lucky really, I just couldn't get a definitive answer on that question because it was too obvious I think, but now you have cleared it up for me. Cheers Martin

Mark Alexander

18:22 PM, 27th October 2014
About 4 years ago

Reply to the comment left by "Martin Roscoe" at "27/10/2014 - 18:07":

No problem Martin, we all have naive questions from time to time. As somebody on this website once said, none of us was born knowing how to boil an egg!
.

Jason Living

20:39 PM, 2nd November 2014
About 4 years ago

In reply to Yvette Newbury I agree that you should use the HMRC website to educate yourself but please don't ask them for advice and expect them to ensure that you pay the minimum in tax - that's not their job. As others have said, engage a decent accountant who should be able to save you more than they will cost (either in hard cash or in saving your own valuable time).

Jason

Colin Dartnell

0:36 AM, 3rd November 2014
About 4 years ago

Don't forget to add on any capital expenditure you may of had along the way, upgraded kitchen, bathroom, extensions etc. to the price you paid for the property. All allowable before CGT unless you have already claimed them as repairs.

Puzzler

12:52 PM, 3rd November 2014
About 4 years ago

I think the above comments sum it up pretty well but just to say that capital input is not tax deductible. Interest on your mortage is tax deductible from the rental income but not from the sale proceeds - that would mean getting the relief twice.

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