Selling Buy to let and CGT

by Readers Question

14:03 PM, 3rd January 2017
About 2 years ago

Selling Buy to let and CGT

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Selling Buy to let and CGT

I would like to sell a couple of long term buy to let properties I own in order to purchase another income producing property in another part of the country (Somerset) where I wish to retire too. conundrum

As I understand it even though I intend to use the proceeds of the sale of my properties towards another similar property I will still have to take the 28% CGT hit.

This will make it untenable. I did get excited last year as I found a site advising that you would not have to pay the CGT if you purchased a similar property within 6 months, only to find out this was a Canadian site !

As far as I can see this CGT liability makes it very difficult for any landlord to ‘upgrade’ his portfolio by selling one or more properties in order to purchase another property, either in another area or perhaps a larger property.

Had the CGT rate been more reasonable at 18% I could probably live with this, but at 28% it seems that I will have to sit tight and carry on as is, as there is no way I am going to accept having to loose over 50k in CGT just to relocate.

Chris



Comments

Neil Patterson

14:07 PM, 3rd January 2017
About 2 years ago

Hi Chris,

This has always been a conundrum for BTL investors. Hence why in the vast majority of cases pre section 24 landlords have normally just remortgaged and released the equity to make further purchases rather than trading up.

The only other option is to legitimately move into a property as your main residence and claim PPR relief against CGT.

Please see >> https://www.property118.com/capital-gains-tax-relief-on-a-property-you-have-lived-in/

(Capital Gain Tax on a Property you have lived in)

Chris wood

16:11 PM, 3rd January 2017
About 2 years ago

Thank you for your comment. I did look at making it my main residence for a period to offset at least some of the CGT liability. However I was advised that I would only be able to use it for the portion of the property I resided in (as it is a 5 bedroom HMO). I hardly think it would be worth it.
The Revenue has really clobbered investment property owners over the years. The removal of
taper relief, high CGT rate and Section 24 etc etc.
When they put CGT up to 28% I did some foraging on the internet to find out what happens when
governments get greedy and impose high tax rates. It would seem that revenues actually fall because people (like myself) hang on to investments - be it property, art, antiques or whatever.
Only disposing of them if they have too or when there is a fairer and more favourable tax
regime. I wonder if the higher CGT rates and higher stamp duty rates will start to put the brake on property transactions.

Neil Patterson

16:32 PM, 3rd January 2017
About 2 years ago

Hi Chris,

Higher SDLT and Section 24 Tax Grab have already significantly slowed down the total number of transactions.

H B

20:59 PM, 3rd January 2017
About 2 years ago

Chris,

The obvious solution would be to remortgage the existing properties to extract the maximum equity you can - have you considered this? It looks like you have over £200,000 of equity that could be withdrawn and it will also allow you to take advantage of house price increases on more than one property.

Hamish McBloggs

11:33 AM, 4th January 2017
About 2 years ago

Hi,

What happens when a property that is mortgaged to the hilt is finally sold?

Isn't there still all a capital gain to cover?

Hamish

Neil Patterson

11:36 AM, 4th January 2017
About 2 years ago

Yes the CGT could be more than the equity in theory

Chris wood

11:46 AM, 4th January 2017
About 2 years ago

Reply to the comment left by "H B" at "03/01/2017 - 20:59":

I've just turned 60 and have worked very hard over my working life. I wanted to still work but at a more relaxed pace, so the idea was to sell up my home and investment properties and buy an investment property in Somerset. I actually found a perfect one in Minehead - Victorian property with three retail units below and a flat above and a large car park at the rear with potential. Would have been an ideal little set up. Then when I looked at selling up I found out about the CGT implications.
To be honest I just want to move from the Midlands and have an easier pace of life down south so still retaining the property and raising funds by re-mortgaging it just does not fit in with my ELP (easier life plan) !
Thanks for your suggestion though.

Hamish McBloggs

12:58 PM, 4th January 2017
About 2 years ago

Reply to the comment left by "Neil Patterson" at "04/01/2017 - 11:36":

Neil,

Am I broadly right that when an estate is wound up then CGT becomes unavoidable?

Can the CGT liability be deducted from the value of an estate for inheritance tax calculations?

Hamish

Adrian Jones

15:13 PM, 4th January 2017
About 2 years ago

Reply to the comment left by "Neil Patterson" at "03/01/2017 - 14:07":

Am I right in thinking basic rate tax payers only pay 18% CGT?

Neil Patterson

15:32 PM, 4th January 2017
About 2 years ago

8. Tax rates from 6 April 2016

You pay a different rate of tax on gains from residential property than you do on other assets.

You don’t usually pay tax when you sell your home.
If you pay higher rate Income Tax

If you’re a higher or additional rate taxpayer you’ll pay:

28% on your gains from residential property
20% on your gains from other chargeable assets

If you pay basic rate Income Tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

Work out how much taxable income you have - this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.

Work out your total taxable gains.

Deduct your tax-free allowance from your total taxable gains.

Add this amount to your taxable income.

If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above this.

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