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  • FIRST POST
    • funnymonkey
    • By funnymonkey 9th Jun 17, 8:39 PM
    • 47Posts
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    funnymonkey
    How much tax to pay when selling a rental property
    • #1
    • 9th Jun 17, 8:39 PM
    How much tax to pay when selling a rental property 9th Jun 17 at 8:39 PM
    Can anyone please help me
    My mother has a rental property that she lived in until 10 years ago and now rents out.
    She wishes to gift aid the property to me (not sure if this could be done) or if she sells the property to me at a reduced rate what % of tax would she need to pay in tax?
    Thank you
Page 1
    • emmatthews
    • By emmatthews 9th Jun 17, 9:03 PM
    • 644 Posts
    • 1,252 Thanks
    emmatthews
    • #2
    • 9th Jun 17, 9:03 PM
    • #2
    • 9th Jun 17, 9:03 PM
    Does the property have a mortgage and what do you mean by gift aid it to you, do you mean give it to you?
    • Cakeguts
    • By Cakeguts 9th Jun 17, 9:22 PM
    • 2,667 Posts
    • 3,642 Thanks
    Cakeguts
    • #3
    • 9th Jun 17, 9:22 PM
    • #3
    • 9th Jun 17, 9:22 PM
    As I understand it capital gains tax is based on a market price valuation not on how little she sell it to you for. Where does she live now? Has she got another property that she owns and lives in?
    • funnymonkey
    • By funnymonkey 9th Jun 17, 9:52 PM
    • 47 Posts
    • 2 Thanks
    funnymonkey
    • #4
    • 9th Jun 17, 9:52 PM
    • #4
    • 9th Jun 17, 9:52 PM
    She lives on a caravan park as she much prefers it there as there's many retirees there she has made friends with
    • 00ec25
    • By 00ec25 9th Jun 17, 9:52 PM
    • 4,558 Posts
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    00ec25
    • #5
    • 9th Jun 17, 9:52 PM
    • #5
    • 9th Jun 17, 9:52 PM
    on the basis the property was once her main/only home and that for the last 10 years it has not had that status because it was let, then if you want to know the real answer please provide the following:
    1. where did she move to, ie did she buy another home where she has lived since then, or did she move from that property into a full time residential care home?
    2. date of original purchase
    3. original purchase cost (what she paid, not what the mortgage was)
    4. date she moved out, ie when it ceased to be her main home. That may be a little earlier than the date tenants moved in, particularly if there was an overlap caused by her moving into her current home (assuming she owns where she currently lives)
    5. what the property would be worth now if sold on the open market to a stranger
    6. what is her total income for the current year (this directly drives how much CGT she pays at 18% and how much she pays at 28%)

    unless you answer the above questions you will just waste everyone's time replying as they cannot give a meaningful answer without those figures.

    also note:
    1. you are not a registered charity therefore she cannot "gift aid" it
    2, you and your mother are, in tax terms, "connected persons" therefore as she is liable to Capital gains tax on the disposal of a property which has not been her only home for the entire time she owned it she must calculate her gain using current market value, not a discounted price that you pay her
    3. if you pay her less that full market value, including if she gifts it to you for free, then it will affect her inheritance tax position and may also impact her ability to claim means tested care home costs in the future as it would be "deprivation of capital"
    Last edited by 00ec25; 10-06-2017 at 9:40 AM.
    • G_M
    • By G_M 10th Jun 17, 12:05 AM
    • 40,579 Posts
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    G_M
    • #6
    • 10th Jun 17, 12:05 AM
    • #6
    • 10th Jun 17, 12:05 AM
    Can anyone please help me
    ....if she sells the property to me at a reduced rate what % of tax would she need to pay in tax?
    Thank you
    Originally posted by funnymonkey
    I will be happy to answer the question you ask, once you have provided the information requested by 00ec25 above.
    • PhilE
    • By PhilE 11th Jun 17, 2:01 PM
    • 83 Posts
    • 87 Thanks
    PhilE
    • #7
    • 11th Jun 17, 2:01 PM
    • #7
    • 11th Jun 17, 2:01 PM
    Can anyone please help me
    My mother has a rental property that she lived in until 10 years ago and now rents out.
    She wishes to gift aid the property to me (not sure if this could be done) or if she sells the property to me at a reduced rate what % of tax would she need to pay in tax?
    Thank you
    Originally posted by funnymonkey
    You don't get charged Capital Gains for the time you've lived in a property as your only place of residence. You get charged CG for the time you've rented.
    In this case its a mixed use, so she would pay CGT for the time she rented out the property. This still applies if she gifts you the property or sells it to you at a reduced rate, the tax would be based on the market value of the property.

    If she gifts the property to you, Inheritance Tax gets cancelled after 7 years of the gift being made, with a sliding scale in the meantime. If she were to decide to live in the property again after giving it to you, its then regarded as a 'gift with reservation of benefit,' and subject to the full inheritance tax rate, unless she rents from you at the going market rate.
    Whether your mums estate would be liable for IHT depends on the value of the estate. So IHT may or may not be a consideration.

    Also, you couldn't buy your mums house at a reduced rate and escape IHT. The taxman would view the house as market value, so to avoid IHT you'd have to purchase the house at market value. Chat to a solicitor about this to confirm.

    Stamp Duty will only apply to the gift if there is a mortgage attached to it, which the receiver of the gifted property would have to pay for.

    And of course, if the property is still being rented you pay income tax on the rent.
    Last edited by PhilE; 11-06-2017 at 2:36 PM.
    • 00ec25
    • By 00ec25 12th Jun 17, 10:34 AM
    • 4,558 Posts
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    00ec25
    • #8
    • 12th Jun 17, 10:34 AM
    • #8
    • 12th Jun 17, 10:34 AM
    OP, do you want to know the answer or not? I see you have posted on other threads since this one yet appear not to have returned here?
    • funnymonkey
    • By funnymonkey 16th Jun 17, 10:11 AM
    • 47 Posts
    • 2 Thanks
    funnymonkey
    • #9
    • 16th Jun 17, 10:11 AM
    • #9
    • 16th Jun 17, 10:11 AM
    Thank you very much for your replies...looking at a different possibility now.
    Much apprecited
    • Keep pedalling
    • By Keep pedalling 16th Jun 17, 10:22 AM
    • 3,446 Posts
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    Keep pedalling
    If this is your mother's only major asset, she would silly to give it away.
    • rmltcob
    • By rmltcob 18th Jun 17, 5:14 AM
    • 2 Posts
    • 0 Thanks
    rmltcob
    CGT liability
    Hi - Q re CGT.

    I brought a 2nd property in May 2006 for £197,500 and its been rented out for c.90% of the time since then. I now want to sell it, likely value is £365,000 as is, more with renovations/improvements.

    During this entire period ive been below min tax threshold, and never made any CGT claims.

    Maintenance, improvements and purchase/sale/agents/solicitors fees are likely c.£20,000 over 11 years.

    What might my CGT liability be if I sell now, or if consider additional renovations/improvments before sale pls?

    Any other suggestions to limit CGT liability?

    Cheers
    • csgohan4
    • By csgohan4 18th Jun 17, 7:04 AM
    • 3,647 Posts
    • 2,276 Thanks
    csgohan4
    Hi - Q re CGT.

    I brought a 2nd property in May 2006 for £197,500 and its been rented out for c.90% of the time since then. I now want to sell it, likely value is £365,000 as is, more with renovations/improvements.

    During this entire period ive been below min tax threshold, and never made any CGT claims.

    Maintenance, improvements and purchase/sale/agents/solicitors fees are likely c.£20,000 over 11 years.

    What might my CGT liability be if I sell now, or if consider additional renovations/improvments before sale pls?

    Any other suggestions to limit CGT liability?

    Cheers
    Originally posted by rmltcob
    create your own thread please, your hijacking someone's thread
    "It is prudent when shopping for something important, not to limit yourself to Pound land"
    • Keep pedalling
    • By Keep pedalling 18th Jun 17, 11:13 AM
    • 3,446 Posts
    • 3,713 Thanks
    Keep pedalling
    Hi - Q re CGT.

    I brought a 2nd property in May 2006 for £197,500 and its been rented out for c.90% of the time since then. I now want to sell it, likely value is £365,000 as is, more with renovations/improvements.

    During this entire period ive been below min tax threshold, and never made any CGT claims.

    Maintenance, improvements and purchase/sale/agents/solicitors fees are likely c.£20,000 over 11 years.

    What might my CGT liability be if I sell now, or if consider additional renovations/improvments before sale pls?

    Any other suggestions to limit CGT liability?

    Cheers
    Originally posted by rmltcob
    This really should be on its own thread, but as you are new and the OP is unlikely to every come back to it, I will try to to answer as best I can. First off it is unlikely that your improvements will be deductible, as things like decorating and raplacing things like CH boilers are deamed as general maintenance, which is claimable as expenses against income tax on rentals.

    Selling and buying costs are deductible, so this leaves you with a taxable gain of around £154k after your £11,300 annual allowance, some of which will be taxed between 18 and 28% depending on your income. Bearing in mind the level of gain here most will be at 28%

    Your options for reducing it are limited. If you are married or in a civil partnership a transfer into joint ownership before the sale would double the allowance. The only other offset is from any capital losses you had in the past or are sitting on now, such as a substantial holding of bank shares which have been held for years and are now worth a fraction of what you purchased them for.
    • 00ec25
    • By 00ec25 18th Jun 17, 12:46 PM
    • 4,558 Posts
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    00ec25
    I brought a 2nd property in May 2006 for £197,500 and its been rented out for c.90% of the time since then. I now want to sell it, likely value is £365,000 as is, more with renovations / improvements.
    Originally posted by rmltcob
    so you have a gross gain of 167,500

    During this entire period ive been below min tax threshold, and never made any CGT claims.
    Originally posted by rmltcob
    irrelevant. You pay CGT at point of sale, there is no unused anything to carry over year to year

    you tax status in the year of sale is all that matters. Have you really never paid tax on your income for 11 years? You have less than the income tax personal allowance every year since 2006 - do not forget some benefits are classed as taxable payments.

    Maintenance, improvements and purchase/sale/agents/solicitors fees are likely c.£20,000 over 11 years.

    What might my CGT liability be if I sell now
    Originally posted by rmltcob
    maintenance is not a capital cost, it is a revenue cost and is claimed against income when working out your net profit each year that will be subject to income tax. You have (presumably) already declared the fact you have rental income haven't you, even if you are not a taxpayer? I find it had to believe that you have remained below the tax threshold from 2006, when the threshold was £5,035, to now when it is £11,500

    how sure are you of your history? When you sell the property, if you have not declared your income to date HMRC are going to spot that.

    "improvements" would need to be listed in detail before anyone can say if they are capital in nature and therefore can be deducted against your CGT gross gain. Also remember that whatever values you claim you will need invoices to support in case HMRC asks for proof of your figures.

    You are correct in saying that your legal fees on purchase and legal fees plus EA's charges on sale are deductible form the gross gain. legal. At a purchase price of 197,500 in May 2006 you presumably paid £1,975 of SDLT (unless you claimed disadvantaged area relief?) so that also can be deducted. For the sake of an example let us assume you paid 1% EA fee on sale so £3,650 and had legal fees of 1,000 on purchase and 1,000 on sale

    Let us do the best possible outcome you could have which occurs only if you have zero income... but you can see how the calculation works so can put in your real figure yourself

    annual income: £ zero (no salary? no rental income !!! taxable benefits? interest on savings? dividends received? cash in hand work )

    CGT gain: gross gain - costs (SDLT, EA, legals) - CGT allowance = 197,500 - 1,975 - 3,650 - 2,000 - 11,300 = 178,575

    gain taxable at 18%: basic rate tax threshold - annual income = 45,000 - 0 = 45,000 x 18% = £8,100
    gain taxable at 28%: net gain - amount taxed at 18% = 178,575 - 45,000 = 133,575 x 28% = 37,401

    so in the most extreme case you would get £365,000 on selling, pay EA and legal costs of 4,650 and (8,100+37401) = 45,501 CGT, leaving you to trouser £314,849 in cash after tax

    or if consider additional renovations/improvments before sale pls?

    Any other suggestions to limit CGT liability?
    Originally posted by rmltcob
    ? you do realise that tax is not 100%

    how will you be better off spending a shed load of money on "improvements" so that your tax bill is reduced by only 28% of what you spent? That way madness lies as it would be a ridiculous gamble that your improvements increase the value of the property by at least 72% so cover what they cost you to do in the first place. Spend £100, "save" £28 CGT, you are still left down £72 unless the value increases by at least that much - a rather unlikely scenario!

    Note - I am taking as read that "2nd home" and let for 90% of the time means it has never been your main home for yourself? It is now far too late to try that trick.
    Last edited by 00ec25; 18-06-2017 at 1:02 PM.
    • cte1111
    • By cte1111 18th Jun 17, 1:08 PM
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    • 373,352 Thanks
    cte1111
    A couple of points for both the people dealing with the sale of a private residence, later let out:

    In addition to the Private Residence Relief for the years that you lived in the property, you will be entitled to additional PRR for the last 18 months that you own the property.

    You will be also be entitled to Letting Relief, for the period the property was let out. Letting relief is the lower of:
    the amount of PRR
    the chargeable gain for the period it was rented out
    £40,000
    https://www.gov.uk/tax-sell-home/let-out-part-of-home

    Remember that asking on forums like this could mean you end up with incorrect advice, so the best way to be sure you are acting on correct information is to pay for professional advice (and / or look it up yourself on the HMRC website in this case).
    • 00ec25
    • By 00ec25 18th Jun 17, 1:30 PM
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    00ec25
    A couple of points for both the people dealing with the sale of a private residence, later let out:

    In addition to the Private Residence Relief for the years that you lived in the property, you will be entitled to additional PRR for the last 18 months that you own the property.

    You will be also be entitled to Letting Relief, for the period the property was let out. (excluding the final 18 months if the let period overlaps with the final 18 months of ownership, ie. you cannot double count the final 18 months where there is overlap) Letting relief is the lower of:
    the amount of PRR
    the chargeable gain for the period it was rented out
    £40,000
    https://www.gov.uk/tax-sell-home/let-out-part-of-home

    Remember that asking on forums like this could mean you end up with incorrect advice, so the best way to be sure you are acting on correct information is to pay for professional advice (and / or look it up yourself on the HMRC website in this case).
    Originally posted by cte1111
    as said, tax calculations require precise workings and knowledge of the exact rules
    • Keep pedalling
    • By Keep pedalling 18th Jun 17, 2:17 PM
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    Keep pedalling
    as said, tax calculations require precise workings and knowledge of the exact rules
    Originally posted by 00ec25
    The poster did say this was a second property, so I assumed it was never their primary residence. Of cause it is always dangerous to assume anything unless you have all the facts.
    • 00ec25
    • By 00ec25 18th Jun 17, 3:25 PM
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    00ec25
    The poster did say this was a second property, so I assumed it was never their primary residence. Of cause it is always dangerous to assume anything unless you have all the facts.
    Originally posted by Keep pedalling
    ?

    I'm not passing comment on your post!

    I was merely showing that every time someone replies to a tax question we each of us almost inevitably leave out a detail which is germane to the answer but is explained in full if one reads the HMRC guidance as the forum would be ridiculous if we wrote out the technical detail on every reply.

    Therefore answers on here unintentionally risk being misleading, so as cte111 so astutely says: "pay for professional advice". (In case you miss out, for example, the restriction on the final 18 months!)
    • rmltcob
    • By rmltcob 21st Jun 17, 11:17 AM
    • 2 Posts
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    rmltcob
    Firstly, apologies for the thread hijacking. Yes, Im a newby to this.

    In response, yes much info missing that can mislead effective tax advise.

    Having spent most of the last 15 years abroad with no effective income, the (now) second residence has received little attention, especially with book keeping in the early days after urchase in 2006.

    I came and went from it now and again from until 2009, before renting it pretty much permernantly until now. It has done little more than wipe its face from an income persective.

    The key Qs I think determining CGT will likely surround ability to argue for Private Residential Relief and Letting Relief. And I really dont have much remaining paperwork from a decade ago in support of occassional residency in the property when back in the UK.

    If I make a claim for these reliefs, and HMRC asks for documention in support, what might these be?
    • 00ec25
    • By 00ec25 21st Jun 17, 2:09 PM
    • 4,558 Posts
    • 3,936 Thanks
    00ec25
    In response, yes much info missing that can mislead effective tax advise.

    Having spent most of the last 15 years abroad with no effective income, the (now) second residence has received little attention, especially with book keeping in the early days after urchase in 2006.

    I came and went from it now and again from until 2009,
    Originally posted by rmltcob
    still risk being mislead!!!!

    was it, or was it not, your ONLY (or main) home between 2006 - 2009? If not, where did you live instead? Did you own or rent the other place, if rented was it on a tenancy agreement or were you lodging?

    what was your UK tax status during those 15 years working abroad? UK non resident? a few bits of paper won't reverse the latter situation.

    Are you registered under the non resident landlord scheme for your income tax? You have been declaring your income tax haven't you?

    LR is capped at £40,000 or PPR. Until you provide details it looks like you have no, or very little, claim to PPR, so LR will be zero or low.
    Last edited by 00ec25; 21-06-2017 at 2:13 PM.
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