BEWARE – there is no Capital Gains Tax Roll-Over on BuyToLet

BEWARE – there is no Capital Gains Tax Roll-Over on BuyToLet

10:00 AM, 1st August 2012, About 9 years ago 12

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Following an email I received from a reader yesterday I feel compelled to write an article warning landlords of the tax implications of selling their assets due to there being no capital gains tax roll-over on BuyToLet properties.BEWARE - there is no Capital Gains Tax Roll-Over on BuyToLet

The email came from a gentleman whose mother is in her 70’s and is considering exit/succession strategies. Apparently she’s owned an HMO for 43 years and has repaid the mortgage. Their plan, until reading my article about partial exit strategies was to sell the property and to re-invest the money into properties which are easier to manage and don’t come with all the new legislation surrounding HMO’s. I can only imagine how much capital gains tax would be triggered on the disposal. The property is now worth £650,000. How much would a property like that have cost 43 years ago?

What’s worse is that if the money is reinvested into buying more BuyToLet properties there is no capital gains tax roll-over relief. If the properties were commercial premises such as offices, shops, warehouses, nursing homes etc. then CGT roll-over relief would be applicable, however, due to a quirk in tax law there is currently no Capital Gains Tax Roll-Over on BuyToLet residential property.

I have dropped them an email inviting them to call me but I’m sharing this story, without breaching any confidentiality of course, as it may well affect other peoples decisions.

As you will have seen from Neil Pattersons article yesterday, “ageism in BuyToLet mortgages doesn’t exist with all lenders. Therefore, it may well be possible for the HMO property to be remortgaged and for the mortgage interest to be offset against rental profits.

That’s doesn’t change the hassle factor of continued ownership of course, however, read THIS ARTICLE and you will see that this problem is easily solved too.

For this Mother and Son partnership there are several other reasons why they should consider such a strategy.

  1. Capital Gains Tax ceases to fall due on death. OK, so that’s a bummer of a way to get out of paying your taxes but it is a fact and can be used to good affect  in legacy planning.
  2. Any monies gifted to the son now will not form part of the mothers estate providing she survives for seven years.
  3. The value of the estate will be substantially reduced by raising a mortgage as the mortgage liability can be offset against the value of the asset.
  4. Gifted monies can be used to build a new property portfolio in the sons name
This article is provided for guidance only and does not constitute financial advice. I strongly recommend that you take advice from suitable qualified professionals with Professional Indemnity Insurance. If you would like me to introduce you to my own trusted contacts please drop me an email outlining your circumstances in as much detail as possible and include your contact details. My email address is mark@property118.com


Comments

by Mark Alexander

16:54 PM, 5th October 2014, About 7 years ago

Reply to the comment left by "Sue S" at "05/10/2014 - 15:51":

Sadly none that I am aware of
.

by Jilly Br

23:43 PM, 10th December 2015, About 6 years ago

Maybe this is off topic, but I have sold own residence 3 months ago, and moved into one of my rental props which I've had since end 2007. -
I am worried that if I let the lender know that it's no longer btl, I am breaking mortgage terms and they could get nasty. (MT are very vicious) No one''s mentioned that aspect and whether they changed their mortgage product,if they had a btl mortgage in progress.
So until I am clear on it , I have not told them and still use old correspondence address for them, but I have updated other addresses, banks dvla etc. To avoid CGT what is the minimum I need to live in it assuming HMRC don't investigate and give me a hard time? Your feedback would be most helpful.


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