Capital gains on BTL sale - any views ?
Discussion
Just in the process of considering a sale on a BTL, I am going to get professional advice just, but just interested in any views. Situation involves the first house that I actually purchased to live in. I purchased in 1998 for £47k. I moved out in 2006 when I purchased another house and turned house 1 into a BTL. About 4 months before moving out I had it valued (by a surveyor for a mortgage valuation) at £148k. I've rented it out ever since and it's now worth about the same, say £150k. My understanding is that there would be no cap gains on the sale, as the value now is roughly the same (i.e. gain is less than cap gains allowance)as it was when it ceased to be my primary residence. I have the letter re the £148k valuation and I can clearly show it was my sole residence unti 2006. Does my understanding make sense, I've not made any obvious mistakes in understanding here ?
We are about to sell our BTL property so I have been looking at this myself.
You have either 10.6k or 11k allowance in the financial year so for you:-
Sale Purchase = 150,000
Less Purchase Price = 47,000
Less Selling Costs e.g. 2,000
Less Purchase Costs e.g. 2,000
Net Gain = 99,000
So lets say you in the 11k allowance and own it yourself (if you are a joint owner you will then get 2x allowances e.g. 22k). You will have to pay either 18percent or 28percent of the 88k profit.
You have either 10.6k or 11k allowance in the financial year so for you:-
Sale Purchase = 150,000
Less Purchase Price = 47,000
Less Selling Costs e.g. 2,000
Less Purchase Costs e.g. 2,000
Net Gain = 99,000
So lets say you in the 11k allowance and own it yourself (if you are a joint owner you will then get 2x allowances e.g. 22k). You will have to pay either 18percent or 28percent of the 88k profit.
There are a couple of important and very relevant dates in the detailsm you have given. You state the following -
Property purchased - 1998
Main residence from 1998 to 2006
Not main residence from 2006 to date.
Could you let us know the actual dates (to the precise day if possible) in the years you mentioned these events happened.
You will get a measure of relief for the period that the property was your main residence.
Property purchased - 1998
Main residence from 1998 to 2006
Not main residence from 2006 to date.
Could you let us know the actual dates (to the precise day if possible) in the years you mentioned these events happened.
You will get a measure of relief for the period that the property was your main residence.
SwissJonese said:
We are about to sell our BTL property so I have been looking at this myself.
You have either 10.6k or 11k allowance in the financial year so for you:-
Sale Purchase = 150,000
Less Purchase Price = 47,000
Less Selling Costs e.g. 2,000
Less Purchase Costs e.g. 2,000
Net Gain = 99,000
So lets say you in the 11k allowance and own it yourself (if you are a joint owner you will then get 2x allowances e.g. 22k). You will have to pay either 18percent or 28percent of the 88k profit.
Not correct, no tax due on period when it was main residence, only during the let years. Even those years will get allowances and reliefs too. As OP thinks, there is likely to be very little CGT to pay.You have either 10.6k or 11k allowance in the financial year so for you:-
Sale Purchase = 150,000
Less Purchase Price = 47,000
Less Selling Costs e.g. 2,000
Less Purchase Costs e.g. 2,000
Net Gain = 99,000
So lets say you in the 11k allowance and own it yourself (if you are a joint owner you will then get 2x allowances e.g. 22k). You will have to pay either 18percent or 28percent of the 88k profit.
Eric will sort you out......
The gain accrues smoothly over the whole period of ownership, so you need to calculate the gain based on sale price (less costs of sale) less original purchase price (plus costs of purchase and any capital 'improvements', e.g. building work).
Periods of actual occupation of the property as your Primary Residence are exempted, with the remaining periods potentially chargeable to tax, with some additional exemptions, the main one being the last 18 months of ownership, as long as it has been your primary residence at some point during your ownership (hence 'flipping' by naughty MPs a few years ago).
Ca. 17 years of ownership.
Let's say £102k of gain, to make the figures easier.
£102k / 17 = £6k of gain accruing per year.
1998 - 2006 is exempt, as is the last 18 months (both "PR" periods), leaving you with 7.5 years of potentially taxable period = £45k (= 7.5 / 17 * 102)
Lettings relief available for the lesser of the exempted "PR" gain and £40k. (in this case, £40k)
This leaves £5k of gain potentially taxable.
Assuming you have the CGT Annual Exemption available to you (£11,100 for 2014/15), there should not be any capital gains tax due.
Bonzer!
(N.B. you will need to do this calculation accurately using the exact dates and amounts...)
Periods of actual occupation of the property as your Primary Residence are exempted, with the remaining periods potentially chargeable to tax, with some additional exemptions, the main one being the last 18 months of ownership, as long as it has been your primary residence at some point during your ownership (hence 'flipping' by naughty MPs a few years ago).
Ca. 17 years of ownership.
Let's say £102k of gain, to make the figures easier.
£102k / 17 = £6k of gain accruing per year.
1998 - 2006 is exempt, as is the last 18 months (both "PR" periods), leaving you with 7.5 years of potentially taxable period = £45k (= 7.5 / 17 * 102)
Lettings relief available for the lesser of the exempted "PR" gain and £40k. (in this case, £40k)
This leaves £5k of gain potentially taxable.
Assuming you have the CGT Annual Exemption available to you (£11,100 for 2014/15), there should not be any capital gains tax due.
Bonzer!
(N.B. you will need to do this calculation accurately using the exact dates and amounts...)
Edited by schmunk on Tuesday 3rd February 12:05
Eric - here goes on dates :
Purchased property 15/8/98 for £47050
Had surveyor valuation 10/8/06 £148,000
Moved out from this property on 23/12/2006. From August 1998 to December 2006, it was my sole residence.
Thanks for the help, some of the other comments suggest people may make some rash and costly decisions. Clearly, I'd not sell it in this manner, if I was going to be landed with a large tax bill.
Purchased property 15/8/98 for £47050
Had surveyor valuation 10/8/06 £148,000
Moved out from this property on 23/12/2006. From August 1998 to December 2006, it was my sole residence.
Thanks for the help, some of the other comments suggest people may make some rash and costly decisions. Clearly, I'd not sell it in this manner, if I was going to be landed with a large tax bill.
WindsorRob said:
Eric - here goes on dates :
Purchased property 15/8/98 for £47050
Had surveyor valuation 10/8/06 £148,000
Moved out from this property on 23/12/2006. From August 1998 to December 2006, it was my sole residence.
Thanks for the help, some of the other comments suggest people may make some rash and costly decisions. Clearly, I'd not sell it in this manner, if I was going to be landed with a large tax bill.
Pretend that you sold the property today (3 February 2015) for (say) £250,000 (the 1996 valuation is not that relevant). Based on the figures you give above, the overall gain is £202,950 (£250,000 less the cost of £47,050).Purchased property 15/8/98 for £47050
Had surveyor valuation 10/8/06 £148,000
Moved out from this property on 23/12/2006. From August 1998 to December 2006, it was my sole residence.
Thanks for the help, some of the other comments suggest people may make some rash and costly decisions. Clearly, I'd not sell it in this manner, if I was going to be landed with a large tax bill.
You do not pay Capital Gains Tax on the full gain of £202,950.
Firstly, for a substantial period, the property was your Main Residence. A person never pays Capital Gains Tax on the sale or disposal of their main residence. Therefore, that period of ownership is removed from the computation. In addition, HMRC also gives you an additional 18 months period to augment the actual period it was your Main Residence. I calculate that you have owned the property for 6,014 days in total. In that period, it was your main residence (including the extra 18 months) for 3,597 days.
Therefore the gain of £202,950 is restricted by £121,386 (i.e. £202,950 x 3,597/6,014).
That leaves you with a reduced taxable gain of £81,564.
Because the property has been let since 2006, you are entitled to Private Lettings Relief which in you case would be £40,000. This leaves you with £41,564 taxable.
You then knock off your Annual Capital Gains tax allowance of £11,000 leaving £30,564 taxable.
If the property is jointly owned, a further £11,000 will be available for deduction.
Also, as well as the basic purchase price and selling proceeds, you can also take into account all the fees, charges etc you would have incurred when you bought the property and when you sell the property, which may bring the gain down even more.
And finally, if you "enhanced" the property at any time after you originally purchased it, then you can add the cost of those enhancements to the original costs of £47,050.
"Enhancements" usually refer to major capital expenditures such as extensions, conservatories, upgrades to internal systems, double glazing etc.
If you reclaimed any such costs against the rental income then you can't claim them again as "enhancements" for Capital Gains purposes.
Hope that helps.
Feel free to check the numbers.
Eric, big thanks. Just want to check something - the key point I take from this is that any valuations that a person has had while owning the property are irrelevent, hence this removes the ups / downs of the property market at various points. The gain is measured in a 'smoothed' manner i.e. total gain Vs time.
Is this always the way that it's done and I assume, it's the way that HMRC would do tihngs ?
On a related point, if a property is gifted to an individual and is not then used as that individuals main residence, is it the value at time of transfer that is taken as the starting point for any subsequent gain. For example :
Property gifted 1/1/14 at £200k
Sold 1/1/24 at £300 - theoretical taxable gain is £100k (less allowances etc)
Again, thanks for the info.
Is this always the way that it's done and I assume, it's the way that HMRC would do tihngs ?
On a related point, if a property is gifted to an individual and is not then used as that individuals main residence, is it the value at time of transfer that is taken as the starting point for any subsequent gain. For example :
Property gifted 1/1/14 at £200k
Sold 1/1/24 at £300 - theoretical taxable gain is £100k (less allowances etc)
Again, thanks for the info.
WindsorRob said:
Eric, big thanks. Just want to check something - the key point I take from this is that any valuations that a person has had while owning the property are irrelevent, hence this removes the ups / downs of the property market at various points. The gain is measured in a 'smoothed' manner i.e. total gain Vs time.
Is this always the way that it's done and I assume, it's the way that HMRC would do tihngs ?
YES - IT IS A SIMPLE SUBTRACTION OF COSTS FROM PROCEEDS. IN THE PAST, THERE WERE FORMS OF ADJUSTMENT TO TAKE INFLATION INTO ACCOUNT,. THESE WERE ABOLISHED IN 2008
On a related point, if a property is gifted to an individual and is not then used as that individuals main residence, is it the value at time of transfer that is taken as the starting point for any subsequent gain. For example :
Property gifted 1/1/14 at £200k
Sold 1/1/24 at £300 - theoretical taxable gain is £100k (less allowances etc)
YES - IF A PERSON ACQUIRES AN ASSET THROUGH AN INHERITANCE OR A GIFT, THEY ARE DEEMED TO HAVE RECEIVED IT AT THE MARKET VALUE OF THE DATE OF THE GIFT OR INHERITANCE
Again, thanks for the info.
Reply in bold.Is this always the way that it's done and I assume, it's the way that HMRC would do tihngs ?
YES - IT IS A SIMPLE SUBTRACTION OF COSTS FROM PROCEEDS. IN THE PAST, THERE WERE FORMS OF ADJUSTMENT TO TAKE INFLATION INTO ACCOUNT,. THESE WERE ABOLISHED IN 2008
On a related point, if a property is gifted to an individual and is not then used as that individuals main residence, is it the value at time of transfer that is taken as the starting point for any subsequent gain. For example :
Property gifted 1/1/14 at £200k
Sold 1/1/24 at £300 - theoretical taxable gain is £100k (less allowances etc)
YES - IF A PERSON ACQUIRES AN ASSET THROUGH AN INHERITANCE OR A GIFT, THEY ARE DEEMED TO HAVE RECEIVED IT AT THE MARKET VALUE OF THE DATE OF THE GIFT OR INHERITANCE
Again, thanks for the info.
Edited by Eric Mc on Tuesday 3rd February 14:43
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