Stamp Duty and CGT on rental property

red_verity

Hello,
I am looking for advice about my situation. I've read a lot but never seem to be able to get an answer to my specific circumstances so I thought maybe this forum would be a good place to ask.

I own a one bedroom flat which I used to live in about 17 years ago and have been letting out ever since. I currently live with my partner and 3 children in a rented house. So I only own one property but am not resident there and I have a buy-to-let interest only mortgage. 

If/when I decide to sell, will I be taxed as a landlord/business or as an individual selling one property to buy another to live in?  I get the impression that stamp duty and CGT will be charged at the same levels as those people who have 2 or more properties, is that correct? Do they judge it on the fact that I don't live in the flat, or on how many properties I own?

Another factor is that our daughter has special needs and is almost certain to live with us into adulthood. We need to figure out the best way to make sure she is financially secure when we're not around to look after her. I wondered whether putting the flat or any profit from it into a trust or similar would be a tax-efficient way to use the money, since it will be hers in the end and we would have power of attorney over her assets while we're alive anyway.

I would be really grateful for any thoughts/advice/pointers you can give me...and please be gentle, this is the one and only properly I've ever owned so I don't have much experience of buying/selling property. Also, I appreciate that there are lots of changes afoot because of the budget but I am interested to know the priciples that these things are judged on, rather than the exact percentages etc.

Thanks in advance,
Emma

MSE_ForumTeam5

Moved to more suitable part of forum

Bookworm105

you have bog standard circumstances 

SDLT - you own a property which a) is not your main home and (crucially) b) is not being sold.
Therefore, you will go from owning one to owning 2 properties
the tax rate used in that case is called the additional rate for the purchase of additional properties
QED additional SDLT rate 5%

CGT - when you sell the flat then CGT applies on the total gain from  original purchase price and actual selling price. For the % of time you lived in it as main home that will be exempt (called PRR - Private Residence Relief), but the rest of your ownership period is taxable.
there are loads of posts on here that explain the mechanics of the CGT calculation.
I appreciate you say be gentle but rather amazed that you operate as a landlord without knowing what happens when you sell. Are you equally unsure when doing your annual taxes ?

Daughter - if your daughter meets the criteria to be a "vulnerable person" then it is worth you looking at vulnerable person trusts (not allowed to call them disabled trusts any longer). Transferring property into the trust would trigger CGT payable by the person who owned the property and is "disposing" of it, ie you, unless you claim "holdover relief"

Trusts and taxes: Trusts for vulnerable people - GOV.UK

Wills and Trusts Service for parents and carers | Mencap

theartfullodger

You ask what rules will be if/when you sell.

Could you kindly let us know what CGT & stamp duty (at least, possibly others) laws/regulations will be when this happens?

Otherwise any "answer" is but a gambling guess.

Regards to all 

SDLT_Geek

Bookworm105 said:

you have bog standard circumstances 

SDLT - you own a property which a) is not your main home and (crucially) b) is not being sold.
Therefore, you will go from owning one to owning 2 properties
the tax rate used in that case is called the additional rate for the purchase of additional properties
QED additional SDLT rate 5%

if you sell the flat within 3 years of buying the additional property then you qualify for "replacing main home" rule as the new place is the new home and the flat was (once) your main home and would be entitled to a refund of the excess SDLT paid over the standard rate. Take longer than 3 years and no refund allowed.

CGT - when you sell the flat then CGT applies on the total gain from  original purchase price and actual selling price. For the % of time you lived in it as main home that will be exempt (called PRR - Private Residence Relief), but the rest of your ownership period is taxable.
there are loads of posts on here that explain the mechanics of the CGT calculation.
I appreciate you say be gentle but rather amazed that you operate as a landlord without knowing what happens when you sell. Are you equally unsure when doing your annual taxes ?

Daughter - if your daughter meets the criteria to be a "vulnerable person" then it is worth you looking at vulnerable person trusts (not allowed to call them disabled trusts any longer). Transferring property into the trust would trigger CGT payable by the person who owned the property and is "disposing" of it, ie you

Trusts and taxes: Trusts for vulnerable people - GOV.UK

Wills and Trusts Service for parents and carers | Mencap

A few points from me:

1.  OP does not actually say that they are planning to buy a property, but this seems to be a sensible assumption to make, given that "stamp duty" is mentioned.

2.  It will also be important to know whether OP would buy in England, so the stamp duty applicable is stamp duty land tax.

3.  I do not agree with the point I have put in italics above (about recovery of the extra 5% SDLT).  Because OP has not lived in the flat within the last 3 years (it has been let out for about 17 years), the extra 5% SDLT would not be recoverable on a later sale of the flat.  For this reason OP might want to sell the flat before buying a home.

Bookworm105

SDLT_Geek said:

3.  I do not agree with the point I have put in italics above (about recovery of the extra 5% SDLT).  Because OP has not lived in the flat within the last 3 years (it has been let out for about 17 years), the extra 5% SDLT would not be recoverable on a later sale of the flat.  For this reason OP might want to sell the flat before buying a home.

@SDLT_Geek  oh unmentionables, I thought that was the case but on searching for links to attach to support it I could no longer find the reference to having to have lived in it in the 3 year period, I could only find reference to selling within 3. You are doubtless correct (original posted amended).

saajan_12

red_verity said:

Hello,
I am looking for advice about my situation. I've read a lot but never seem to be able to get an answer to my specific circumstances so I thought maybe this forum would be a good place to ask.

I own a one bedroom flat which I used to live in about 17 years ago and have been letting out ever since. I currently live with my partner and 3 children in a rented house. So I only own one property but am not resident there and I have a buy-to-let interest only mortgage. 

If/when I decide to sell, will I be taxed as a landlord/business or as an individual selling one property to buy another to live in?  I get the impression that stamp duty and CGT will be charged at the same levels as those people who have 2 or more properties, is that correct? Do they judge it on the fact that I don't live in the flat, or on how many properties I own?

If you sell the flat you're letting out, then you'll pay CGT for the % of time you didn't live there (except for the final 9 months), as with any other LL. 

If you buy a new home while you still own the flat, then you'll pay the extra 5% Stamp Duty. No chance of refund. 

If you first sell the flat and then buy a new home then you'll just pay the standard Stamp Duty, no extra.