Outstanding Mortgage and Capital Gains Tax - Can it be deducted?

Iainhignell

If a buy to let property still has an outstanding mortgage on it when it is sold does the amount outstanding get deducted in the CGT calculation? If so, can someone explain how?

Thanks,

kingstreet

No. It's the current value, minus the value at purchase or at the point the property was first let.

If you once lived in the property, that period will be exempt so read up on this.

G_M

No. The mortgage is not an allowable expense for CGT purposes.

Iainhignell

So for GCT purposes there is no advantage to having a mortgage verses owning the property outright?

saajan_12

Assuming you would count the mortgage at the point of sale as well as the point of purchase, it would likely mean MORE CGT, not less! You would consider the increase in your equity i.e. increase in propverty value and any capital paid off. The maths is (ignoring any renovations / capital improvements and any remortgages for simplicity)

Final equity received - Starting deposit
= (Sale price - Final mtg balance) - (Bought price - Starting mtg balance)
= (Sale price - Bought price) + (Starting mtg balance - final mtg balance)
= Increase in house price + Capital paid off mtg.

CGT is actually based on the increase in house price. Looking at mortgages, the increase in equity would be the same or more than the increase in house price, so do you really want to pay a percentage of this to the tax man?