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Selling a buy to let property - tax question

Hi, in 2010 I bought a small flat as a buy to let investment. I took out 3 mortgages to pay for it

1) 70% mortage on the property it self
2) 20% the balance I raised mortgaging a second buy to let property I have (which was mortgage free
3) 10% I raised through an equity release from the family home

The small flat has increased in value by approx £50k, and I want to sell the flat and release that equity as cash.

I intend to pay off 1) and 2) above in full out of the sale proceeds, but probably not pay off 3) preferring to keep the cash. What is my tax liability on the sale of the flat please?
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Comments

  • antrobus
    antrobus Posts: 17,386 Forumite
    guygamps wrote: »
    Hi, in 2010 I bought a small flat as a buy to let investment. I took out 3 mortgages to pay for it

    1) 70% mortage on the property it self
    2) 20% the balance I raised mortgaging a second buy to let property I have (which was mortgage free
    3) 10% I raised through an equity release from the family home

    The small flat has increased in value by approx £50k, and I want to sell the flat and release that equity as cash.

    I intend to pay off 1) and 2) above in full out of the sale proceeds, but probably not pay off 3) preferring to keep the cash. What is my tax liability on the sale of the flat please?

    Your liability for capital gains tax will be based on the increase in value of the small flat when you actually sell it. If it sells for £50k more than you paid for it, you will be taxed on that £50k. You will have (in 2015/16) an allowance of £11,100, and any capital gain in excess of that will be taxed at either 18%. Or 28% if you are a higher tate tax payer.

    How you funded the purchase of the property in the first place has no direct bearing on the matter.
  • guygamps
    guygamps Posts: 82 Forumite
    Thanks for your answer, is the length of time the property has been owned taken in to consideration. in this case the £50k increase is over 5 years, so is equivalent of £10K per annum. Would the tax offices look at that differently comparing with say a £50k profit in one year?
  • guygamps wrote: »
    Thanks for your answer, is the length of time the property has been owned taken in to consideration. in this case the £50k increase is over 5 years, so is equivalent of £10K per annum. Would the tax offices look at that differently comparing with say a £50k profit in one year?

    No but you can deduct the buying and selling costs from your profit before tax is applied.
  • westernpromise
    westernpromise Posts: 4,833 Forumite
    Does anyone know what the situation is when you let out your previous home?

    I bought a flat in '99 for £245k, moved out in 2004 and the local agents valued it then at £475k. Assuming it were now worth £975k after costs, presumably I would be looking at 28% tax on £500k; but would there be any amount offsettable in respect of the stamp duty I paid in 1999?
  • AdrianC
    AdrianC Posts: 42,189 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper
    but would there be any amount offsettable in respect of the stamp duty I paid in 1999?
    Stamp Duty and CGT are completely and utterly separate, and you'd have had to pay that Stamp Duty whether you were living there all the time, renting all the time, or a mix.

    CGT does take into account that it was your primary residence for some of the time.
  • booksurr
    booksurr Posts: 3,700 Forumite
    Does anyone know what the situation is when you let out your previous home?

    I bought a flat in '99 for £245k, moved out in 2004 and the local agents valued it then at £475k. Assuming it were now worth £975k after costs, presumably I would be looking at 28% tax on £500k; but would there be any amount offsettable in respect of the stamp duty I paid in 1999?
    the value when you moved out is irrelevant

    your gain is 975 - 245 = 730
    you then need to use that figure to work out your private residence relief and your letting relief
    you can then deduct your personal allowance
    that will leave you with the next taxable figure upon which you will pay CGT at 18% and almost certainly some of it at 28% as well

    see here for example calculation
    https://forums.moneysavingexpert.com/discussion/5035228
  • Mallotum_X
    Mallotum_X Posts: 2,591 Forumite
    Part of the Furniture Combo Breaker
    Or just use a local accountant to do it all for you.
  • westernpromise
    westernpromise Posts: 4,833 Forumite
    AdrianC wrote: »
    Stamp Duty and CGT are completely and utterly separate, and you'd have had to pay that Stamp Duty whether you were living there all the time, renting all the time, or a mix.

    CGT does take into account that it was your primary residence for some of the time.

    Are you sure about that? There was something in the paper the other day to the effect that the SDLT you paid when you bought can be deducted from your taxable gain.
  • westernpromise
    westernpromise Posts: 4,833 Forumite
    booksurr wrote: »
    the value when you moved out is irrelevant

    your gain is 975 - 245 = 730
    you then need to use that figure to work out your private residence relief and your letting relief
    you can then deduct your personal allowance
    that will leave you with the next taxable figure upon which you will pay CGT at 18% and almost certainly some of it at 28% as well

    see here for example calculation
    https://forums.moneysavingexpert.com/discussion/5035228

    I'm completely lost, sorry. I can't follow any of the examples in that thread.

    - Bought August 1999, let April 2004, selling say August 2015
    - Total ownership period 192 months
    - Lived in 56 months
    - Let out 136 months

    Gross gain 730,000

    What's next?
  • booksurr
    booksurr Posts: 3,700 Forumite
    Are you sure about that? There was something in the paper the other day to the effect that the SDLT you paid when you bought can be deducted from your taxable gain.

    SDLT is a cost of the acquisition and is therefore an allowable deduction
    see page 14
    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/382045/cgt-land-buildings.pdf
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