Capital gains tax selling a buy to let

Capital gains tax selling a buy to let

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Discussion

wisbech

2,985 posts

122 months

Saturday 30th March
quotequote all
leef44 said:
His point is more about that he is only considering selling to do a friend a favour which he would then like to reinvest that money in another property so that he is back to the same investment. At some point in the future, he would cash out and then happily pay tax on the gain.

So while he is not cashing out for good but reinvesting, it would make sense that there was rollover relief which is not available for btl.
But it doesn't make sense. There isn't rollover relief for shares either, even if you reinvest in another share. And why should rollover relief only apply for investing in the same asset? Say I sold gold at a gain and reinvested in a BTL, doesn't it equally make sense to give rollover relief?

Retd

Original Poster:

11 posts

117 months

Saturday 30th March
quotequote all
md_ph said:
If you think about it you will have to pay the tax at some stage so you are not in any worse off position overall if you sell now vs sell in years to come.

Initially you will take a hit on the equity that you have but it means that when you come to sell your newly purchased flat when you want to release the funds for your pension you will have less gain to pay in the future as the differences in the buy vs sell price will not be as great as the original flat.
I know that I'll have to pay tax eventually.

But at the moment, the income from the house is part of my pension.
If the house were worth say £100k I might get an income if about 5k
If I sell the house, pay 25% in tax then I can only afford a £75k house and the rent would drop to £3,750.

It's the drop in income that I can't afford, not the eventual capital tax payment



twokcc

832 posts

178 months

Saturday 30th March
quotequote all
Retd said:
I know that I'll have to pay tax eventually.

But at the moment, the income from the house is part of my pension.
If the house were worth say £100k I might get an income if about 5k
If I sell the house, pay 25% in tax then I can only afford a £75k house and the rent would drop to £3,750.

It's the drop in income that I can't afford, not the eventual capital tax payment
The cgt is only payable on the difference between what you paid for the house ( or what it was valued at if you inherited it)
So if value was say 57K when acquired tax payable on £43k less cgt allowance £3k , 18% on £40K gives cgt of £7.2k -big different and as other have said if you have any capital improvements they can reduce the amount of the gain.
What is your current living arrangement (renting or own house) and have you been paying tax on your rental income?

Retd

Original Poster:

11 posts

117 months

Saturday 30th March
quotequote all
twokcc said:
The cgt is only payable on the difference between what you paid for the house ( or what it was valued at if you inherited it)
So if value was say 57K when acquired tax payable on £43k less cgt allowance £3k , 18% on £40K gives cgt of £7.2k -big different and as other have said if you have any capital improvements they can reduce the amount of the gain.
What is your current living arrangement (renting or own house) and have you been paying tax on your rental income?
I have owned the house since 1986. It's in London. The capital gain is substantial.

Of course I pay tax on the rental income.

wisbech

2,985 posts

122 months

Saturday 30th March
quotequote all
Retd said:
I have owned the house since 1986. It's in London. The capital gain is substantial.

Of course I pay tax on the rental income.
Whole thing looks like a non-starter then - inform your tenant that if they are now looking to buy, they should look elsewhere. If you want to do them a favour, agree to a flexible tenancy while they are looking (buying a property can be a very uncertain timeline)

Retd

Original Poster:

11 posts

117 months

Saturday 30th March
quotequote all
wisbech said:
Whole thing looks like a non-starter then - inform your tenant that if they are now looking to buy, they should look elsewhere. If you want to do them a favour, agree to a flexible tenancy while they are looking (buying a property can be a very uncertain timeline)
That seems to be the only option unfortunately.

Unless, as suggested above, the PM calls an election very soon and I become a labour MP smile

twokcc

832 posts

178 months

Saturday 30th March
quotequote all
Retd said:
I have owned the house since 1986. It's in London. The capital gain is substantial.
CGT allowance reduces to £3k per person in a weeks time but top rate of CGT reduces from 28% to 24% neither going to help you significantly and selling bellow market value could give problems with HMRC.
Only way to avoid it would be to make it your primary residence - other complications with your existing home.
Even selling it on open market then giving tenant net proceeds to buy themselves a new home witl result in IHT unless you live another 7 years.

Cant see any government bringing back house price inflation allowance in cgt calculation or increasing IHT thresholds.
You can gift £3k to anyone in tax year- maybe leave them in property and give them £3k gift each year. Leave them a share of the property in your will but just replacing CGT with IHT

Maybe someone more knowledgeable if any way to do this by transferring house into company ownership .but suspect it will trigger CGT at that point.

Easiest solution may be to become an MP and chance your luck as you say.





Edited by twokcc on Saturday 30th March 10:00

98elise

26,698 posts

162 months

Saturday 30th March
quotequote all
wisbech said:
leef44 said:
His point is more about that he is only considering selling to do a friend a favour which he would then like to reinvest that money in another property so that he is back to the same investment. At some point in the future, he would cash out and then happily pay tax on the gain.

So while he is not cashing out for good but reinvesting, it would make sense that there was rollover relief which is not available for btl.
But it doesn't make sense. There isn't rollover relief for shares either, even if you reinvest in another share. And why should rollover relief only apply for investing in the same asset? Say I sold gold at a gain and reinvested in a BTL, doesn't it equally make sense to give rollover relief?
The OP is simply asking, and I can see why it might be a good thing if you could. The net benefit to the Landlord would zero (it would actually cost them). It's the tenant who stands to benefit

As we know rollover relief isn't a thing, so the answer is to not sell the property to the tenant.

Tax law changes when the government want to encourage certain behaviour. I buy and sell stocks and shares all the time, and pay zero tax. I make more from that than I do from my BTL! Selling a home to a tenant is something that should be encouraged, and more of a benefit to society than tax free share dealing.

wisbech

2,985 posts

122 months

Saturday 30th March
quotequote all
98elise said:
The OP is simply asking, and I can see why it might be a good thing if you could. The net benefit to the Landlord would zero (it would actually cost them). It's the tenant who stands to benefit

As we know rollover relief isn't a thing, so the answer is to not sell the property to the tenant.

Tax law changes when the government want to encourage certain behaviour. I buy and sell stocks and shares all the time, and pay zero tax. I make more from that than I do from my BTL! Selling a home to a tenant is something that should be encouraged, and more of a benefit to society than tax free share dealing.
If you are over your CGT allowance, you do pay tax on gains from shares. Unless held in a tax free wrapper like an ISA.

Agree on the tax policy point, but the government has been trying to discourage BTL. Allowing CGT relief if you buy another would encourage BTL. And almost impossible to say 'only if you sell to a tenant" - what difference does it make if you sell to a sitting tenant or just to a random person looking for a house?

If the govt wants to encourage selling up, then the tax relief should be (say) granted if the proceeds are invested in a pension, not in a BTL. (might not be a terrible idea, as everyone says their BTL are their pension)

BoRED S2upid

19,723 posts

241 months

Saturday 30th March
quotequote all
CoolHands said:
You could say you’re a Labour mp and everything would be fine?
This. Just don’t pay it and when they take you to court suggest they take her to court first.

Monkeylegend

26,496 posts

232 months

Saturday 30th March
quotequote all
hellorent said:
Are you sure, my accountant advised me a while ago if I sell 1 of my BTL's and buy another with the sale proceeds
the would be no CG to pay.
Is that the same accountant Angela uses?

liner33

10,701 posts

203 months

Saturday 30th March
quotequote all
Retd said:
I have owned the house since 1986. It's in London. The capital gain is substantial.

Of course I pay tax on the rental income.
We are in the same position , our flat is in West London and bought it in 1989, its likely to only get worse under a Labour government

98elise

26,698 posts

162 months

Saturday 30th March
quotequote all
wisbech said:
98elise said:
The OP is simply asking, and I can see why it might be a good thing if you could. The net benefit to the Landlord would zero (it would actually cost them). It's the tenant who stands to benefit

As we know rollover relief isn't a thing, so the answer is to not sell the property to the tenant.

Tax law changes when the government want to encourage certain behaviour. I buy and sell stocks and shares all the time, and pay zero tax. I make more from that than I do from my BTL! Selling a home to a tenant is something that should be encouraged, and more of a benefit to society than tax free share dealing.
If you are over your CGT allowance, you do pay tax on gains from shares. Unless held in a tax free wrapper like an ISA.

Agree on the tax policy point, but the government has been trying to discourage BTL. Allowing CGT relief if you buy another would encourage BTL. And almost impossible to say 'only if you sell to a tenant" - what difference does it make if you sell to a sitting tenant or just to a random person looking for a house?

If the govt wants to encourage selling up, then the tax relief should be (say) granted if the proceeds are invested in a pension, not in a BTL. (might not be a terrible idea, as everyone says their BTL are their pension)
All in ISA's and a SIPP so zero tax to pay. The government is oddly very generous with tax relief on stock market gains.

I'm not saying it should get relief, only that if it was a thing it would be benefiting the Tenant rather than the Landlord.

CGT is a big reason not to sell BTL. Mine are long term so about 50% of their value is taxable. A big part of that is simply inflation so it makes no sense to ever sell.

If I could release that value into to my pension I would do it tomorrow. Yields are about 4% gross so I can beat that on interest alone!




Edited by 98elise on Saturday 30th March 14:33

leef44

4,440 posts

154 months

Saturday 30th March
quotequote all
wisbech said:
leef44 said:
His point is more about that he is only considering selling to do a friend a favour which he would then like to reinvest that money in another property so that he is back to the same investment. At some point in the future, he would cash out and then happily pay tax on the gain.

So while he is not cashing out for good but reinvesting, it would make sense that there was rollover relief which is not available for btl.
But it doesn't make sense. There isn't rollover relief for shares either, even if you reinvest in another share. And why should rollover relief only apply for investing in the same asset? Say I sold gold at a gain and reinvested in a BTL, doesn't it equally make sense to give rollover relief?
Actually that's a fair point. I have shares in general investment account due to lump sum receipt and have already used up my ISA allowance. So I'm in the same situation in that I avoid selling up to move to another investment because it would incur a CGT.

nyt

1,808 posts

151 months

Saturday 30th March
quotequote all
leef44 said:
Actually that's a fair point. I have shares in general investment account due to lump sum receipt and have already used up my ISA allowance. So I'm in the same situation in that I avoid selling up to move to another investment because it would incur a CGT.
Don't you bed & breakfast your shares every year?

https://www.investopedia.com/terms/b/bed-and-break...

Just time before the end of the tax year smile


98elise

26,698 posts

162 months

Saturday 30th March
quotequote all
nyt said:
leef44 said:
Actually that's a fair point. I have shares in general investment account due to lump sum receipt and have already used up my ISA allowance. So I'm in the same situation in that I avoid selling up to move to another investment because it would incur a CGT.
Don't you bed & breakfast your shares every year?

https://www.investopedia.com/terms/b/bed-and-break...

Just time before the end of the tax year smile
B&B isn't what it used to be. Now you have to stay out of that share for a given period otherwise it counts as a single buy/sell.

It's a stupid rule.

leef44

4,440 posts

154 months

Saturday 30th March
quotequote all
nyt said:
leef44 said:
Actually that's a fair point. I have shares in general investment account due to lump sum receipt and have already used up my ISA allowance. So I'm in the same situation in that I avoid selling up to move to another investment because it would incur a CGT.
Don't you bed & breakfast your shares every year?

https://www.investopedia.com/terms/b/bed-and-break...

Just time before the end of the tax year smile
Yes thanks, I've done that.

Sarcastic mode on: I'm complaining that I've gained too much money and that I reached the £6k CGT allowance limit so still got money left in the investment account outside of SIPP and ISA. I've also got half transferred to the OH and used up her allowance.

But on a serious note and back to topic, yes there are (tax) restrictions with shares when you are making profit and so similar to having restrictions when BTL which is another form of investment.

Somebody

1,196 posts

84 months

Saturday 30th March
quotequote all
Monkeylegend said:
hellorent said:
Are you sure, my accountant advised me a while ago if I sell 1 of my BTL's and buy another with the sale proceeds
the would be no CG to pay.
Is that the same accountant Angela uses?
Would this work if the property is held in a limited company? It's then a business asset and the gain can rollover in this instance?

98elise

26,698 posts

162 months

Saturday 30th March
quotequote all
Somebody said:
Monkeylegend said:
hellorent said:
Are you sure, my accountant advised me a while ago if I sell 1 of my BTL's and buy another with the sale proceeds
the would be no CG to pay.
Is that the same accountant Angela uses?
Would this work if the property is held in a limited company? It's then a business asset and the gain can rollover in this instance?
Surely you would have to sell it to the company first, triggering CGT

When the government stopped landlords offsetting loan interest, it only applied to private landlords not Ltd companies. Long term private landlords can't simply become Ltd companies, because of CGT.

WhiskyDisco

810 posts

75 months

Saturday 30th March
quotequote all
Hypothetically speaking, what if the OP sold the property for the same amount he purchased it for. Would he evade the tax, and would this be allowed?

I ask because I bought a house at auction a few years ago, did it up and moved my in-laws in. At the time they sold their house, but they didn't buy my house. They have been living as "tenants" for years. Could I give to them the house for nothing and it all be rosy?