Using equity in one house to buy another

blue_eyes777

CGT seems so hard to calculate. Does anybody have any idea what CGT might be payable (if it stays at 18%) on a property in 23 years after it is sold with a net increase of £300k? Would it be 18% of £300k - therefore approx £54k?

holly_hobby

Its only 18% if you are a basic rate taxpayer, and the whole gain (net of permitted reliefs, exemptions and deductions), and once added to your income, keeps your total income under the higher rate threshold.

If not, you are taxed at 28% on the gain that exceeds the higher rate threshold.

Thats why i mentioned earlier, owning jointly (consider tenants in common), as you will have 2 sets of cgt annual exemptions to apply, apart from rental income division and resulting income tax mitigation (if as i say you have differing tax bands).

As I say, I do think you need to sit down with your own adviser to bottom out, both your investment strategy and how your chosen route will be impacted by taxes, they will explain in layman terms and ensure your understanding before proceeding, including (if appropriate) suggesting an alternative route which will achieve your objectives with the lowest risk exposure to capital.

Hope this helps

Holly x

blue_eyes777

Thanks Holly.

Thrugelmir

blue_eyes777 wrote: »

I agree that the yield is low. Our primary aim, though is long-term capital gains - rather than rental yield.
IF, and this is a big IF, property prices in this area do follow the projected course, then the the increase in the market prices of these two properties in 5-6 years could be £87,500 and £67,500 pounds. Of course, we would have to offset that against the SD and arrangement fees, but that second property could still realize a capital gain of £50k after 5 years.

Property should be purchased on the basis of yield. With capital being the icing. With £455k of debt a 3% rise in rates will cost you over £13k a year in interest.

getmore4less

blue_eyes777 wrote: »

CGT seems so hard to calculate. Does anybody have any idea what CGT might be payable (if it stays at 18%) on a property in 23 years after it is sold with a net increase of £300k? Would it be 18% of £300k - therefore approx £54k?

These are the sort of questions you ask before you set up a rental business.