Capital Gains Tax / Stamp Duty

Cookywin

Hi All,

Appologies if I'm posting in the wrong place, but could anyone help me with a query.

I own a house which I'm renting out currently, I live with parents. I'm thinking of buying another house that is a wreck and I want to do it up and then sell it for a profit hopefully. I'll live in it whilst its being done up.

If the house is say £100,000 I'll have to pay £5,000 stamp duty, lets say for the fees to buy then sell where 5,000 and I spent 5,000 doing it up.

Then I sell it for £125,000, how much Capital Gains would i need to pay?

My understanding is that it would be £25,000 which was the extra money made, minus the £5,000 for stamp duty, £5,000 for fees and £5,000 for doing it up leaves £10,000. Then theres a £3,000 threshold, so I'd pay 18% of £7,000... is that correct?

If I only live there say one year, I can then claim the £5,000 stampt duty back can't I? meaning I actually made £12,000 on the deal in total.

Is that right? all the fiigures are just to make my point, dont take them too literally

Thank you

eskbanker

The costs of 'doing it up' won't necessarily all qualify, in that there's an important distinction between improvement and maintenance:

costs of improvement works, for example for an extension (normal maintenance costs, such as decorating, do not count)

https://www.gov.uk/tax-sell-property/work-out-your-gain

https://www.gov.uk/stamp-duty-land-tax/refunds-of-stamp-duty-land-tax covers the rules around SDLT refunds.

Cookywin

Hi,

Thanks for the reply, I've clicked the links but I dont fully understand the stamp duty bit still, they dont make it easy to follow at all. I'll pay £5,000 in this example, but if I only live there one year say and then sell it, can I claim that back? the profit etc and the fact decorating isnt covered I understand, my main concern is around the capital gains and stamp duty bits.

Thank you.

Cookywin

I think I understand now, is this correct?

If I rent out Home A and buy and live in Home B then I'll pay £5,000 stamp duty.

I cannot claim that stamp duty back when I sell B, but I can class the £5,000 as a cost when the Capital Gains tax comes in meaning I pay less tax.

That seems to make sense... I think.

sheramber

You don’t lay. CGT on selling your principal private residence. 

Jeremy535897

I'm no expert on stamp duty, but it seems that the additional rate of SDLT will be payable, and it would only be recoverable if you sold the rental property within 3 years.
So far as capital gains tax is concerned, you should elect for the property to be your main residence from the date you buy it, and in most cases the main residence relief will mean no capital gains tax is payable, assuming you live there throughout your ownership of it. If it is uninhabitable to begin with, there is a rule that allows up to 24 months doing it up for it to be treated as your main residence. But if a reason for buying it is to sell it at a profit, main residence relief can be denied.

eskbanker

Cookywin said:

I think I understand now, is this correct?

If I rent out Home A and buy and live in Home B then I'll pay £5,000 stamp duty.

I cannot claim that stamp duty back when I sell B, but I can class the £5,000 as a cost when the Capital Gains tax comes in meaning I pay less tax.

That seems to make sense... I think.

If you live in Home B throughout your ownership of it then there's no CGT to pay anyway, as the tax isn't chargeable on your main residence, but Home A will already be accruing a CGT liability.

p00hsticks

Jeremy535897 said:

I'm no expert on stamp duty, but it seems that the additional rate of SDLT will be payable, and it would only be recoverable if you sold the rental property within 3 years.

I don't believe that would work as the rental property isn't the OPs main residence. As I understand it you can only claim the surcharge back when selling if you are changing residences but buy the new residence before selling the old and so have to initially pay the additional rate.

Jeremy535897

p00hsticks said:

Jeremy535897 said:

I'm no expert on stamp duty, but it seems that the additional rate of SDLT will be payable, and it would only be recoverable if you sold the rental property within 3 years.

I don't believe that would work as the rental property isn't the OPs main residence. As I understand it you can only claim the surcharge back when selling if you are changing residences but buy the new residence before selling the old and so have to initially pay the additional rate.

It all seems very illogical, but as I said, I am no expert. ChatGPT seems to think there might be some relief, but who can believe that?

sheramber

OP has house A which is rented out.

He buys house B  and pays Additional Stamp Duty as it second property and he is not disposing of his main residence.

House B becomes his main residence from purchase. 

He sells house B , which is his main residence  that he lives in, within 3 years.

He is disposing of his main residence .

Does he have to be replacing his main residence or is it only ‘disposing’.

OP has not indicated whether he intends buying a new main residence. 

If he did that would complicate matters even more.
 

Rental property is not involved in the transactions.