How much tax to pay when selling a rental property

csgohan4

rmltcob wrote: »

Hi - Q re CGT.

I brought a 2nd property in May 2006 for £197,500 and its been rented out for c.90% of the time since then. I now want to sell it, likely value is £365,000 as is, more with renovations/improvements.

During this entire period ive been below min tax threshold, and never made any CGT claims.

Maintenance, improvements and purchase/sale/agents/solicitors fees are likely c.£20,000 over 11 years.

What might my CGT liability be if I sell now, or if consider additional renovations/improvments before sale pls?

Any other suggestions to limit CGT liability?

Cheers

create your own thread please, your hijacking someone's thread

Keep_pedalling

rmltcob wrote: »

Hi - Q re CGT.

I brought a 2nd property in May 2006 for £197,500 and its been rented out for c.90% of the time since then. I now want to sell it, likely value is £365,000 as is, more with renovations/improvements.

During this entire period ive been below min tax threshold, and never made any CGT claims.

Maintenance, improvements and purchase/sale/agents/solicitors fees are likely c.£20,000 over 11 years.

What might my CGT liability be if I sell now, or if consider additional renovations/improvments before sale pls?

Any other suggestions to limit CGT liability?

Cheers

This really should be on its own thread, but as you are new and the OP is unlikely to every come back to it, I will try to to answer as best I can. First off it is unlikely that your improvements will be deductible, as things like decorating and raplacing things like CH boilers are deamed as general maintenance, which is claimable as expenses against income tax on rentals.

Selling and buying costs are deductible, so this leaves you with a taxable gain of around £154k after your £11,300 annual allowance, some of which will be taxed between 18 and 28% depending on your income. Bearing in mind the level of gain here most will be at 28%

Your options for reducing it are limited. If you are married or in a civil partnership a transfer into joint ownership before the sale would double the allowance. The only other offset is from any capital losses you had in the past or are sitting on now, such as a substantial holding of bank shares which have been held for years and are now worth a fraction of what you purchased them for.

00ec25

rmltcob wrote: »

I brought a 2nd property in May 2006 for £197,500 and its been rented out for c.90% of the time since then. I now want to sell it, likely value is £365,000 as is, more with renovations / improvements.

so you have a gross gain of 167,500

rmltcob wrote: »

During this entire period ive been below min tax threshold, and never made any CGT claims.

irrelevant. You pay CGT at point of sale, there is no unused anything to carry over year to year

you tax status in the year of sale is all that matters. Have you really never paid tax on your income for 11 years? You have less than the income tax personal allowance every year since 2006 - do not forget some benefits are classed as taxable payments.

rmltcob wrote: »

Maintenance, improvements and purchase/sale/agents/solicitors fees are likely c.£20,000 over 11 years.

What might my CGT liability be if I sell now

maintenance is not a capital cost, it is a revenue cost and is claimed against income when working out your net profit each year that will be subject to income tax. You have (presumably) already declared the fact you have rental income haven't you, even if you are not a taxpayer? I find it had to believe that you have remained below the tax threshold from 2006, when the threshold was £5,035, to now when it is £11,500

how sure are you of your history? When you sell the property, if you have not declared your income to date HMRC are going to spot that.

"improvements" would need to be listed in detail before anyone can say if they are capital in nature and therefore can be deducted against your CGT gross gain. Also remember that whatever values you claim you will need invoices to support in case HMRC asks for proof of your figures.

You are correct in saying that your legal fees on purchase and legal fees plus EA's charges on sale are deductible form the gross gain. legal. At a purchase price of 197,500 in May 2006 you presumably paid £1,975 of SDLT (unless you claimed disadvantaged area relief?) so that also can be deducted. For the sake of an example let us assume you paid 1% EA fee on sale so £3,650 and had legal fees of 1,000 on purchase and 1,000 on sale

Let us do the best possible outcome you could have which occurs only if you have zero income... but you can see how the calculation works so can put in your real figure yourself

annual income: £ zero (no salary? no rental income !!! taxable benefits? interest on savings? dividends received? cash in hand work )

CGT gain: gross gain - costs (SDLT, EA, legals) - CGT allowance = 197,500 - 1,975 - 3,650 - 2,000 - 11,300 = 178,575

gain taxable at 18%: basic rate tax threshold - annual income = 45,000 - 0 = 45,000 x 18% = £8,100
gain taxable at 28%: net gain - amount taxed at 18% = 178,575 - 45,000 = 133,575 x 28% = 37,401

so in the most extreme case you would get £365,000 on selling, pay EA and legal costs of 4,650 and (8,100+37401) = 45,501 CGT, leaving you to trouser £314,849 in cash after tax

rmltcob wrote: »

or if consider additional renovations/improvments before sale pls?

Any other suggestions to limit CGT liability?

? you do realise that tax is not 100%

how will you be better off spending a shed load of money on "improvements" so that your tax bill is reduced by only 28% of what you spent? That way madness lies as it would be a ridiculous gamble that your improvements increase the value of the property by at least 72% so cover what they cost you to do in the first place. Spend £100, "save" £28 CGT, you are still left down £72 unless the value increases by at least that much - a rather unlikely scenario!

Note - I am taking as read that "2nd home" and let for 90% of the time means it has never been your main home for yourself? It is now far too late to try that trick.

cte1111

A couple of points for both the people dealing with the sale of a private residence, later let out:

In addition to the Private Residence Relief for the years that you lived in the property, you will be entitled to additional PRR for the last 18 months that you own the property.

You will be also be entitled to Letting Relief, for the period the property was let out. Letting relief is the lower of:
the amount of PRR
the chargeable gain for the period it was rented out
£40,000
https://www.gov.uk/tax-sell-home/let-out-part-of-home

Remember that asking on forums like this could mean you end up with incorrect advice, so the best way to be sure you are acting on correct information is to pay for professional advice (and / or look it up yourself on the HMRC website in this case).

00ec25

cte1111 wrote: »

A couple of points for both the people dealing with the sale of a private residence, later let out:

In addition to the Private Residence Relief for the years that you lived in the property, you will be entitled to additional PRR for the last 18 months that you own the property.

You will be also be entitled to Letting Relief, for the period the property was let out. (excluding the final 18 months if the let period overlaps with the final 18 months of ownership, ie. you cannot double count the final 18 months where there is overlap) Letting relief is the lower of:
the amount of PRR
the chargeable gain for the period it was rented out
£40,000
https://www.gov.uk/tax-sell-home/let-out-part-of-home

Remember that asking on forums like this could mean you end up with incorrect advice, so the best way to be sure you are acting on correct information is to pay for professional advice (and / or look it up yourself on the HMRC website in this case).

as said, tax calculations require precise workings and knowledge of the exact rules

Keep_pedalling

00ec25 wrote: »

as said, tax calculations require precise workings and knowledge of the exact rules

The poster did say this was a second property, so I assumed it was never their primary residence. Of cause it is always dangerous to assume anything unless you have all the facts.

00ec25

Keep_pedalling wrote: »

The poster did say this was a second property, so I assumed it was never their primary residence. Of cause it is always dangerous to assume anything unless you have all the facts.

?

I'm not passing comment on your post!

I was merely showing that every time someone replies to a tax question we each of us almost inevitably leave out a detail which is germane to the answer but is explained in full if one reads the HMRC guidance as the forum would be ridiculous if we wrote out the technical detail on every reply.

Therefore answers on here unintentionally risk being misleading, so as cte111 so astutely says: "pay for professional advice". (In case you miss out, for example, the restriction on the final 18 months!)

rmltcob

Firstly, apologies for the thread hijacking. Yes, Im a newby to this.

In response, yes much info missing that can mislead effective tax advise.

Having spent most of the last 15 years abroad with no effective income, the (now) second residence has received little attention, especially with book keeping in the early days after urchase in 2006.

I came and went from it now and again from until 2009, before renting it pretty much permernantly until now. It has done little more than wipe its face from an income persective.

The key Qs I think determining CGT will likely surround ability to argue for Private Residential Relief and Letting Relief. And I really dont have much remaining paperwork from a decade ago in support of occassional residency in the property when back in the UK.

If I make a claim for these reliefs, and HMRC asks for documention in support, what might these be?

00ec25

rmltcob wrote: »

In response, yes much info missing that can mislead effective tax advise.

Having spent most of the last 15 years abroad with no effective income, the (now) second residence has received little attention, especially with book keeping in the early days after urchase in 2006.

I came and went from it now and again from until 2009,

still risk being mislead!!!!

was it, or was it not, your ONLY (or main) home between 2006 - 2009? If not, where did you live instead? Did you own or rent the other place, if rented was it on a tenancy agreement or were you lodging?

what was your UK tax status during those 15 years working abroad? UK non resident? a few bits of paper won't reverse the latter situation.

Are you registered under the non resident landlord scheme for your income tax? You have been declaring your income tax haven't you?

LR is capped at £40,000 or PPR. Until you provide details it looks like you have no, or very little, claim to PPR, so LR will be zero or low.