Capital gains tax on a buy to let

Jenga123

Hi there,

I'm thinking about selling a property I purchased back in 2006. The capital gains side of things have got me confused. Id appreciate any helps in working out an approximate calculation. Thanks in advance

Purchased for 200k in 2006
Deposit 40k
BTL interest only mortgage 160k
Value today 400k
Costs when purchasing:5k

Ive not had any major works such as extension's or aby thing done. Also the property has been let out since it was purchased.

Any help would be much appreciated

Thanks

Jenga123

The mortgage is interest only, and is still at 160k balance. Also I am basic rate tax payer. Thanks

Thrugelmir

Selling costs are also a deductible expense.

Here's a calculator to assist you.

https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/

Jenga123

Hi, thanks for this
Does mortgage count as a selling cost?

booksurr

you really are confused if you think the mortgage is a selling cost? Do you think the UK taxpayer should fund your property empire by paying your mortgage for you given you have already claimed tax relief on its interest as part of your annual income tax payment on your rental profit?

CGT is based on the difference between your purchase cost and what you sell it for. How you funded its purchase (ie your mortgage and deposit) is utterly irrelevant. You therefore have a gross gain of 400 - 200 = 200k

You say you have 5k of purchase costs , I assume that is the total of the legal fees and the SDLT you paid? With a price of 200k you must have paid some SDLT given the threshold in 2006 was 120k?

You may also deduct the legal costs plus any estate agent fees incurred when selling

so with a 200k gain (less above costs) you can also then deduct your CGT allowance (£11,100 for tax year 16/17) to arrive at the net taxable gain

the amount of CGT you will have to actually pay depends on what is called your "total income" for the tax year you sell in. That figure is all your income (before any income tax is paid) ie: salary, rental profit, (non ISA) savings interest, dividends received etc
the difference between your "total income" and £43,000 is the amount of the gain which will be taxed at the 18% CGT rate, the rest of the gain will be taxed at 28%

for the sake of an illustration let us say you have a salary of 25k, rental profit of 10K and other bits and bobs of 1k. Your total income would thus be 36k

let us say your selling costs are also 5k meaning your net taxable gain will be: 200k - 5k (purchase costs) - 5 (selling costs) - 11.1 (personal allowance = 178.9k

with a "total income" of 36k you would pay CGT of (43 - 36) =7 k @18% (£1,260) and the rest 187.9 - 7 = 171.9 @ 28% ((£48,132) so the total CGT you would pay when you sell your property for £400,000 would be £49,392 leaving you with around £350k in your pocket

AnotherJoe

booksurr wrote: »

......

with a "total income" of 36k you would pay CGT of (43 - 36) =7 k @18% (£1,260) and the rest 187.9 - 7 = 171.9 @ 28% ((£48,132) so the total CGT you would pay when you sell your property for £400,000 would be £49,392 leaving you with around £350k in your pocket

Once you say what's left in his pocket, you have to account for the mortgage !
£350k -£160k mortgage leaving £190k in his pocket (of which perhaps £60k was already there before he bought )

booksurr

AnotherJoe wrote: »

Once you say what's left in his pocket, you have to account for the mortgage !
£350k -£160k mortgage leaving £190k in his pocket (of which perhaps £60k was already there before he bought )

thank you for that nit pick, it is obvious that the mortgage has to be repaid from what is left after the tax has been paid. That is why you can have a very unique circumstance where there is a taxable gain but not enough cash left to pay the mortgage. Aka negative equity arising from overborrowing on a property that has nonetheless gained in value!

Jenga123

Thank you both very much for your input, it's a lot clearer to me now, as you can tell I'm quite new to this! But I appreciate all the help!

AnotherJoe

booksurr wrote: »

thank you for that nit pick, it is obvious that the mortgage has to be repaid from what is left after the tax has been paid. That is why you can have a very unique circumstance where there is a taxable gain but not enough cash left to pay the mortgage. Aka negative equity arising from overborrowing on a property that has nonetheless gained in value!

I wasn't trying to nit pick, just be precise, you initially said the mortgage was irrelevant, which is correct of course, but it is very relevant when you talk about the Pound in Your Pocket