capital gains tax on selling property

lucyandcarl

Anyone help with advice on tax on a second property? Basically we have a second property which we brought for £52,500 5 years ago, we have coverted it into 3 flats and it is now worth £300,000. We have been initially told that capital gain tax would be applied to most the profits on it at 40%, the precentage decreasing over time. Just asking for anyone to advise us whats best to do with it etc, we need to get some money out of it but selling it at the moment would be criminal! Any tips would be appreciated.

A_Nice_Englishman

Well, you could borrow money using the property as security.

Why don't you think you should have to pay the same rates of tax as anyone else who makes over £50K a year?

BobProperty

Sell one of the flats.

Mrs_pbradley936

I think you are talking about taper relief but I have no first hand knowledge of that. I think it means you pay less the longer you own the investment. If you do not need the money in a hurry, you could sell one flat per year over the next three years and enjoy the allowance (currently £8800) on each one. If you are married you can also use your spouse’s allowance. The tax year runs April to April not January to December. You could rent out the others until you wanted to sell them. You might find that you prefer the income they bring in. With the amount of money involved I think you should speak to an accountant who will be able to give you advice tailored to your circumstances.

lucyandcarl

I do not wish to evade Tax or I dont think we should pay less tax!! I was asking for suggestions on what to do i.e remortgaging so that is a bit insulting to say we dont want to paythe same as everyone else!

A_Nice_Englishman

lucyandcarl wrote:

I do not wish to evade Tax or I dont think we should pay less tax!! I was asking for suggestions on what to do i.e remortgaging so that is a bit insulting to say we dont want to paythe same as everyone else!

Sorry, I mistakenly read it as meaning you thought the fact you'd have to pay tax at the going rate was criminal.

lucyandcarl

pbradley936 wrote:

I think you are talking about taper relief but I have no first hand knowledge of that. I think it means you pay less the longer you own the investment. If you do not need the money in a hurry, you could sell one flat per year over the next three years and enjoy the allowance (currently £8800) on each one. If you are married you can also use your spouse’s allowance. The tax year runs April to April not January to December. You could rent out the others until you wanted to sell them. You might find that you prefer the income they bring in. With the amount of money involved I think you should speak to an accountant who will be able to give you advice tailored to your circumstances.

Yes thank you, we are talkingto a financial advisor but it is sometimes nice to talk to people with 'real life experiences' Thanks!

BobProperty

Re-mortgaging is irrelevant to CGT calculation. As per a post yesterday:

You can deduct the costs of buying, selling and renovation, plus taper relief if you have owned it for long enough. Then deduct your CGT allowance for the year, currently about £8800. The profit made is added to your income for that tax year (not taxed at 40% automatically). If you have a wife you can trust (I sound like The Shawshank Redemption), you can gift her a proportion of the house before you sell it. She is then able to claim her £8800 CGT exemption against the gain as well.

Vincenzo

If you want to release funds from the property without incurring an immediate CGT liability, you should remortgage.

Just to be clear you are not able to offset the mortgage interest against income from rent for this part of the mortgage. Although I suspect you will be paying a fair amount of income tax on the rent anyway.

Be aware that on resale you will still be liable to pay CGT on the full gain (subject to reliefs). So if you borrow too heavily, you may find when you come to sell you have a rather hefty tax bill and limited equity left to fund it.

lucyandcarl

Thanks so much for your advice, our Financial Advisor has advised us to keep the property, borrow as much as possible on it,pay off current higher interest borrowings and put some money into high interest accounts. From what I understood, he said to get an interest only mortgage and off-set the interest off our overall tax bill, we are also self employed shop owners you see.

The rent from the properties would cover mortgage payments...your opinion on his advice would be appreciated.

lucyandcarl

I apologise for my snappy response it is just that I took offence because we do pay an awful lot of tax as we are shop owners as well...we pay council taxes, vat, you name it and don't seem to be left with much at the end of it, the Government do nothing or very little to help us independants for the amount of money they have... considering we work 17 hours days a lot of time so it is a sore point, apologies!!!