Capital Gains tax on sale of rented property

carolinerutter

We bought house for buy to let in 2007 for £144,500 - just before property prices collapsed. Now have to sell as interest only mortgage is up and we are too old for it to be renewed (also feel the time is right). Had an off today for £185,000. With esrtate agent and solicitors fees expect this to come down by up to £4,000. = £36.500 left. We put the deposit (£20,000) for the house on our own mortgage at time of purchase. This means we should receive around £56,500 at the time of the sale. We have spent considerable amount over the past 10 years on items such as central heating, double glazing , external repairs and maintenance. We have never lived in the property. We obviously have not made anything like the amount of increased equity which we had originally hoped for, but do not want to lose out further with CGT. We have another buy to let property which we will also need to sell in 2 years time. Is it worth moving the equity from our first sale to pay off this interest only mortgage. How can we avoid paying CGT?
All advice gratefully received

Keep_pedalling

The only way to reduce you CG liabilities would be to offset those gains against any losses you may happen to be sitting on, such as long held bank shares.

G_M

Just be grateful that the property did not increase in value as you'd hoped. If it had, your CGT liability would have been even greater!

Assuming you jointly own, your respective gains are £18,250. You each have an allowance of £11,300, so only £6,950 is taxable each.

At 18% that is a bill of £1,251 each.
At 28% that is a bill of £1,956 each

It's not a lot and that's how the government pays for the NHS etc.

carolinerutter

Thanks both Keep Pedalling and G_M. Unfortunately we do not have any other forms of investment- this was meant to be it after my husband lost most of his pension with Equitable Life. The calculations are useful, thank you G_M. As I work for the NHS ( and one of the reasons we have minimal investment) I am fully aware of the need for financial support from the government. Thanks again- this is my first time using this forum and finding it quite a challenge.




































































helpful.

00ec25

carolinerutter wrote: »

We bought house for buy to let in 2007 for £144,500 - just before property prices collapsed. Now have to sell as interest only mortgage is up and we are too old for it to be renewed (also feel the time is right). Had an off today for £185,000. With esrtate agent and solicitors fees expect this to come down by up to £4,000. = £36.500 left.

so "we" implies joint ownership so you each have a gross gain of (approx) 18,250.

each person is accountable for their own tax . Each person gets the personal exempt amount 11,300 (tax yr 17/18 rate) so leaving a net taxable gain of 6,950

it appears there are no other relief available as you never lived there so each person pays tax on their taxable gain at 18% and/or 28% depending on each person's individual financial circumstances.

carolinerutter wrote: »

We have spent considerable amount over the past 10 years on items such as central heating, double glazing , external repairs and maintenance.

this was a BTL, so presumably has been let whilst you owned it. Therefore, you have presumably been making a rental profit (less income tax of course?) each year. The expenses you list would have been claimed as costs against rental profits because they are not capital costs, they are revenue costs.

carolinerutter wrote: »

We obviously have not made anything like the amount of increased equity which we had originally hoped for, but do not want to lose out further with CGT.

that is a bizarre stance to take. CGT is a tax on a gain, without a gain there is no tax. The tax is a fixed %. The bigger the gain, the more money you have left after tax.
Old saying: do not let the tax tail wag the dog.

carolinerutter wrote: »

We have another buy to let property which we will also need to sell in 2 years time. Is it worth moving the equity from our first sale to pay off this interest only mortgage. How can we avoid paying CGT?

so hardly as poor as you make out then? home + 2 BTL + NHS pension that is better than a significant number of people will ever have.

The way to avoid paying CGT is not to sell, that way you do not have a gain that can be taxed. If you want to exit being landlords and forgo the income stream in your retirement then CGT will have to be paid and there is no logic in investing the surplus cash from house 1 into reducing an interest only mortgage on house 2 if you intend to sell it anyway.

AnotherJoe

carolinerutter wrote: »

We bought house for buy to let in 2007 for £144,500 - just before property prices collapsed.

That’s not relevant except to say, had they not crashed and risen even more, you'd now be paying even more CGT !

Now have to sell as interest only mortgage is up and we are too old for it to be renewed (also feel the time is right).

OK so you wish to sell. Fine

Had an off today for £185,000. With estate agent and solicitors fees expect this to come down by up to £4,000. = £36.500 left. We put the deposit (£20,000) for the house on our own mortgage at time of purchase. This means we should receive around £56,500 at the time of the sale.

So you made a nice profit on the hiuse sale as well as made income

We have spent considerable amount over the past 10 years on items such as central heating, double glazing , external repairs and maintenance.

All claimed against profits from rental I presume

We have never lived in the property. We obviously have not made anything like the amount of increased equity which we had originally hoped for,

“Obviously” .. “hoped for” ??? You don’t have any god-given right to make any particular amount of profit ! You write as if you believe you are entitled to whatever gain you wanted !
You entered a business venture, you made profits along the way and now a profit when you sell. You dont get guarantees when you start a business.

but do not want to lose out further with CGT.

What do you mean "lose out further"? You haven't lost out at all, you've made thirty six thousand pounds profit !!

We have another buy to let property which we will also need to sell in 2 years time. Is it worth moving the equity from our first sale to pay off this interest only mortgage. How can we avoid paying CGT?
You can’t unless you have shares you are sitting on a loss on and what you do with the mortgage makes no difference to any gain or loss on a separate property. ?

To be fair, I suppose you could avoid paying CGT by selling the house for about £20k less

All advice gratefully received

I doubt it will be because from my POV you made a profit, you had no guarantee up front what it should be, you’ve paid some tax on it. That’s what happens the BTL business.

You could have invested in the stock market instead, either in an ISA or a pension and sheltered any profits from tax, you chose to do this instead.

Maybe you made more money, maybe you didn’t your choice,a nd you’ve made enough profit to pay tax which is a good thing. You literally write as if you lost money "lose out further" and the evil government are taxing you as well !

Mahsroh

carolinerutter wrote: »

. How can we avoid paying CGT?

At the risk of sounding flippant - you shouldn't avoid paying CGT. You've bought a property as an investment, made a profit and therefore should pay the tax that you owe.

carolinerutter

Many thanks for your responses. We bought both houses on interest only mortgages- we did not/do not have lump sums to invest- just believed property would be a form of investment. We would have liked to continue but the mortgage needs to be paid off as it has come to the end of its term and due to our age and minimal income we could not get another mortgage. on your point about NHS pensions - as I trained to be a midwife later in life the pension is minimal- however when I eventually get my state pension at 66 I will get less than my husband because I have an NHS pension- which I have been paying ++ into. All very frustrating. off to work now- thank you

carolinerutter

Thanks- I get your point

AnotherJoe

carolinerutter wrote: »

Many thanks for your responses. We bought both houses on interest only mortgages- we did not/do not have lump sums to invest

You said you paid a deposit on the BTL of £20k. Thats a lump sum of £20k

And now you have a lump sum of £53k (20k + £36 profit - £3k tax).

EDIT: And, on the back of a fag packet guesstimate as to whether BTL worked out more profitable better than putting that £20k in the stock market, I'd say it was even allowing for the CGT you'll pay.

carolinerutter wrote: »

however when I eventually get my state pension at 66 I will get less than my husband because I have an NHS pension- which I have been paying ++ into. All very frustrating.

It shouldn't be frustrating because it works out that the NHS pension will be better than the amount you forgo on SP taking into account your contributions. In fact most who opted out (which is what happens when you joined the NHS pension but also happened in private business) are better off overall.

carolinerutter

The £20 K was not a cash sum but taken out as additional mortgage on our residential property. However from all the responses I will consider myself severely admonished, stop moaning and pay the CGT without further complaint. Thank you all.