Tax implications on selling rented property

by Readers Question

4 years ago

Tax implications on selling rented property

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Tax implications on selling rented property

Tax implications on selling rented propertyWhat are the tax implications of selling a previously rented flat to a close relative?

In 1974 my wife and I purchased a dual occupied terraced house together with my brother in law. The house was occupied by a relative downstairs (sitting tenant) from whom we collected no rent and a lodger upstairs who paid rent to the sitting tenant.

In 1978 we obtained full ownership of the property which was still occupied by the sitting tenant and her lodger and received no rental income.

In 1991 the sitting tenant died, downstairs was renovated and rented, the lodger remained upstairs and we collected his rent.

Currently after the renovation into two flats and renting for many years, we would now like to sell upstairs to a relative but are unsure of all the implications.

Thanks

Alan Self

Comments

Mark Alexander

4 years ago

Hi Alan

Capital Gains Tax will be payable.

Has the property ever been your home? This can make a big difference.

Also, are you married and who is the legal owner of the property? Is it just you or you, your wife and others?

Once I get your answers to these questions I will invite my personal tax accountant to comment further. Note that I am not an accountant.

Also, please read this >>> http://www.property118.com/landlord-tax/

Alan

4 years ago

Thank you Mark for replying.
The property is legally owned jointly by myself and my wife and this was my wife’s family home until our marriage.

Mark Alexander

4 years ago

Thanks Alan - in that case the same question has previously been answered by my accountant. His name is Neil Barlow, please see the second comment down below the main article via this link >>> http://www.property118.com/exit-plan-move-in-before-selling-up-to-avoid-cgt/31355/

Jason Holden

4 years ago

Hi Alan

As has already been stated you need a good accountant/tax adviser to deal with this.

Assuming you haven’t lived there personally then you are looking at Capital Gains Tax “CGT”.

Remember though CGT is only on the gain, and there is much that can be offset, improvements and professional fees are main ones to consider.

Also, if jointly owned you both have an Annual CGT Exemption of currently £10,900 each.

CGT is at rates of 18% and 28% for individuals.

Jason

Andrew

4 years ago

A small warning. When selling to a relative this is most likely a connected person for tax purposes so HM Revenue & Customs will calculate the tax based upon the market value of the property and no necessarily what is paid.

The two flats are now separate dwellings and as such the proportionate costs of acquisition and renovation will need to be attributed to each part, and compare to the valuation of the flat and see what sort of gain you are looking at.

A lawyer might be able to advise but I presume you will only be able to sell a leasehold interest in the top flat. As such the length of the leasehold interest could be varied and you could even play around with the reversionary interest if you wanted to be very cute about it.

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