Capital Gains Tax

nomadgirl

I have two (small!) properties. I live in one and rent out the other. I understand that if I sell the rented one I become liable for Capital Gains Tax, which works out at a fair old amount as I had a very lucky buy and the property is worth a load more than I originally paid for it.! Anyone know legal ways to avoid/offset this, please?
Any pointers gratefully received.......

hearts

Sell your present one then move into the other. I think.

linlin_3

You really do need professional advice.......or turn up at HMRC enquiry office. There is something called lettings relief available, but I'm not sure of the amounts.

saintalan

As Hearts says, "sell your own and move into it"!

Of course there might be a ton of reasons why you can't/won't do that. It's just that you don't pay CGT on your own home and that remains for the last 3 years of ownership even if you don't live in it.

It also depends on how long you have owned the rented property as you might be entitled to taper relief. Also don't forget you have your annual allowance of £8800 (I think this year).

Also if you need /have to sell it to raise funds, then if you don't alrady have a mortgage on it, you could get one and offset the interest against rental income.

Lots of possibilities, but it depends on a few facts and why you want to sell it.

Cheers

Alan

Some further info on this thread
http://forums.moneysavingexpert.com/showthread.html?t=363609

Gorgeous_George

saintalan wrote:

As Hearts says, "sell your own and move into it"!

Of course there might be a ton of reasons why you can't/won't do that. It's just that you don't pay CGT on your own home and that remains for the last 3 years of ownership even if you don't live in it.

It also depends on how long you have owned the rented property as you might be entitled to taper relief. Also don't forget you have your annual allowance of £8800 (I think this year).

Also if you need /have to sell it to raise funds, then if you don't alrady have a mortgage on it, you could get one and offset the interest against rental income.
Lots of possibilities, but it depends on a few facts and why you want to sell it.

Cheers

Alan

Some further info on this thread
http://forums.moneysavingexpert.com/showthread.html?t=363609

Not sure how much of that post is true but I'm fairly sure the emboldened part is dodgy. I think that the amount of interest that could be offset against tax will depend on the value of the property when it was first let.



GG

silvercar

Two main ways to reduce CGT are to move into it so it becomes your PPR and to put it into joint names with your spouse, this gives you both a CGT allowance currently £8,800.

If you want to see what your liability might be, post the purchase price, selling price and length of ownership.

Have you ever lived in it?

saintalan

Gorgeous_George wrote:

Not sure how much of that post is true but I'm fairly sure the emboldened part is dodgy. I think that the amount of interest that could be offset against tax will depend on the value of the property when it was first let.



GG

As I understand it, the interest part of your repayments or all of it if interest only can be offset against any Rental Income. Just to be sure I am talking Income Tax & NOT CGT.

Cheers

Alan

silvercar

saintalan wrote:

As I understand it, the interest part of your repayments or all of it if interest only can be offset against any Rental Income. Just to be sure I am talking Income Tax & NOT CGT.

Cheers

Alan

The interest upto the value when it was first let. unless you remortgage and use those funds to purchase another BTL and then you can have the value of the second property in your business as well.

mortgage interest and maintenance can be offset against rental income for income tax purposes.

capital gains liability only occurs when the property is sold and can be reduced by capital expenditure, buying and selling costs as well as taper relief, letting relief, CGT alowance if applicable.

saintalan

silvercar wrote:

The interest upto the value when it was first let.....

Silvercar Hi, probably me being thick, but can you explain a bit more?

Cheers

Alan

silvercar

A let property is yours to do with what you like. So if you wanted to remortgage it, secure loans against it etc you could - upto 100% (or more!) of its value if you wanted.

As far as the "business" of letting it goes and as far as the revenue rules allow, you can count the cost of the interest you pay on the loan as tax deductible, against the rental income you receive for the property. This is restricted to the cost of the asset when it entered your business. (Worth mentioning that the revenue will consider all you let properties as one business so losses on one are allowable against gains on another.) Due to this restriction, if you buy a property for £100k with a £75k mortgage and 10 years later its value increases to £200k and you increase the mortgage to £150k, you only get relief for the interest on £100k of the loan because that was the value when it entered the business.

In their own words:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

example 2 illustrates the point.

MarkyMarkD

The point is that if you mortgage a property for more than it was worth when you commenced the letting business, you are taking money out of the letting business. You don't get tax relief on money you have borrowed simply to spend on something else.