sale of commercial building - what tax will I have to pay?

fusar

Hello,

My husband and I recently bought a terrace retail shop, three months ago, at auction for £80k. We were planning on opening our own business, but due to an unexpected personal event, we are now unable to open the business. We are therefore in limbo, we don't know whether to rent it out at an estimated £7000 per annum (having spent approx. £4000 on renovating it first, to get it in a better condition) or just sell it. We were very surprised at the estate agents valuation of the property, one being £110k, the second being £120K and the third £125K - considering we bought it only three months ago for £80K.

My husband and I are both in the lower band tax rate and have not touched our capital gains allowance (ever, I think!).

Does anyone have any opinions as to what would be best - either selling up or renting it out? I personally prefer to sell it, but I am not sure if we would have to pay tax or if there would be aby kind of tax relief we could apply for?

Any help would be great! Many thanks in advance
Fusar

hopon

Well assuming you sell it for £120000:

Cost 80000
refurb 4000
Selling costs 2500 est
Total cost 86500

Gain 33500
less annual exemption 18400 (9200 each)
taxable gain 15100
tax @ 22% = 3322

Otherwise if you rent it at 7000pa then thats a return of 8.3% of cost or 5.8% of current value + any further capital growth.

All in all not bad for 3 months

Cook_County

You can also deduct costs of purchase eg auctioneers premium or legal fees if you paid these.

fusar

I would just like to say a big THANK-YOU to you both for your replies above. You have both been ever so helpful!

I am persuaded to sell it..... but then a little voice in my head tells me to rent it out! So confused!

Thanks again
Fusar

fusar

Hello,

I was just thinking, would I be able to deduct the mortgage interest that has accrued since owning the property - to deduct from the taxable value? If so, how would I go about finding how much interest I have paid (maybe by contacting the bank?).

Also, my husband has been looking after our children for most of this year, and only works the odd day at the weekend. If he doesn't reach his free taxable allowance, could we take this into consideration too? I.e if he has a taxable allowance of £4k, and only earned £2k, would we be able to offset 2K off the amount liable for CGT on the property if we sell it?

I hope that makes sense?
Thanks
Fusar

vikingaero

If you do sell I think you're allowed to roll over the Capital Gains Tax for up to 2 years and invest in another business/property. So if your plans are to do something in the near future then speak to an accountant about this.

nicpicot

I have a property we use for business. My accountant wants me to pay myself rent equal to the mortage interest. Why can I not just buy the pproperty for my partnership? why set up a rental business? will it affect the cgt when we sell it. I understand there are retirement reliefs for business properties?