Capital Gains if I live in a buy to let later?

by Readers Question

16:08 PM, 20th June 2016
About 3 years ago

Capital Gains if I live in a buy to let later?

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Capital Gains if I live in a buy to let later?

I am proposing to purchase a buy to let now which would obviously then be let, I then propose to pay off the mortgage with the proceeds from my present home and move in to the buy to let property when close to retirement. buy to let

This will not be sold, my question is, do I in any way have to pay a capital gain? I don’t think I will pay a gain on the one I’m living in, and I can’t pay a capital gain if I’m not selling the one I move into, I think! Any help greatly appreciated

Thanks Martin



Comments

Neil Patterson

16:14 PM, 20th June 2016
About 3 years ago

Hi Martin,

First off if you purchase purchase a property with an intention of living in it at some time in the future (doesn't matter when) then the Buy to let mortgage will be regulated and you will need to use a lender that specialises in regulated Buy to Let.. This is because the mortgage will fall under FCA regulation.

You are correct that there will be no CGT on your main residence when you come to sell, but if you live in the buy to let property for a very short time there may be a CGT liability if you change your mind and do sell.

Please see our article on this subject found under the tax tab above >> http://www.property118.com/capital-gains-tax-relief-on-a-property-you-have-lived-in/

Martin Britton

7:58 AM, 21st June 2016
About 3 years ago

Reply to the comment left by "Neil Patterson" at "20/06/2016 - 16:14":

Hi Neil

Thanks for your reply. I would not be selling the property again, it would be my final move. So I am guessing there will be no CGT to pay, thanks.

Regards
Martin

Mark Trenfield

8:48 AM, 21st June 2016
About 3 years ago

Hi Martin,
You will not have any CGT to pay when you sell your present home because it is your Principal Primary Residence.

If you then choose to clear the mortgage and move into your Buy to Let property and you_never_ sell it (ie: you die whilst living there) then no CGT would be payable on that Buy to Let property either (because any CGT gain would die with you).

However, the Buy to Let property will still form part of your estate so, depending on your wealth, there may be an Inheritance Tax cost ie: if it pushes your total assets at death to more than £325,000.

I think this is really smart tax planning though!

Mark

michelle mor

22:35 PM, 21st June 2016
About 3 years ago

That's good to know, I have 4 properties in Yorkshire that are around the £65000 mark and I am wanting to leave them to my 2 children, does that mean if I die and I have put them in my will to give one each, will they not have to pay GGT. As I was planning, when I retire to pass over each child a house to either live in or rent out them selves and leave then each one in my will when I die. Because with other assets I would be over the inheritance tax if I do not pass them over the 2 house. And hopefully live the 7 years.
Michelle

Paul Baker

17:55 PM, 23rd June 2016
About 3 years ago

Hi Michelle, to be clear, CGT dies with the person but the current market value will form past of the deceased person's estate for IHT purposes.
Some people will take the view to never sell the property and just let your estate suffer the IHT.
The worse case scenario would be to sell the property when in retirement, pay a load of CGT, then die soon after before you've had a chance to spend the proceeds and then have your estate pay IHT as well.
To clarify another situation, if you dispose of an asset then it will be assessable for CGT at current market value, so if you gift a property whilst you are alive to your children, you will be deemed to have then disposed of it and will pay CGT based on the market value not the value you received for it (as in nil in the case of a gift).
So if I understand your position correctly, you can gift the two properties in your lifetime if you want to but you will have to pay the CGT on the two gifted properties.
You can also of course leave the other two properties to your children upon your death in your Will which will pass free of CGT but will form part of your estate for IHT purposes and potentially liable for IHTax depending on the value of your other assets. If this was to be the case, you would want to ensure you have left your beneficiaries sufficient liquid assets to pay the IHTax without having to sell the houses to pay the bill which would defeat you wish.


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