Capital gains tax selling a buy to let

[Retd]

I own a house which I currently let out.

I'd like to sell the house to the sitting tenant (at a discount, if that makes any difference) and buy another.

Will I have to pat capital gains tax on the profit that I've made selling my current place even though I'm buying anoher straight away?


Thanks for your help

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Caddyshack said:

Yes, you pay it when you realise the gain. There isn’t any rollover relief to buy the next property.

Thanks for the quick reply. I guess that plan bites the dust

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Panamax said:

Bizarre. There's simply not enough information here to come to that conclusion.

I've no idea why you think that's the case.

I know what the house is worth; my equity and therefore how much capital gains I'd have to pay.

The equity is substantial, I've owned the house for many years so selling will mean me giving upwards of 20% of its worth to the government. I'd also have to pay 3% stamp duty on purchasing a replacement.

I'd like to help the tenant out, but it's too expensive.

Am I missing something?

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98elise said:

It's a shame they don't as selling to a long term tenant should be encouraged.

I agree. The tenant has come into a little money - enough for a deposit.
The house is well suited to him - close to family and medical care that he needs intermittently.

It's a long time since I lived there, so I no longer have any emotional attachment, but it is a big part of my 'pension' and I can't afford to just hand 25% of that to the govt.

Sadly, everyone's a loser.

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macron said:

Come off it, we'll be talking a tickle to avoid estate agent fees.

Not sure why the OP says everyone loses. The OP has a massive gain. Surely that was the whole point of keeping it and renting it out? It amazes me how many people have massive gains then get pissed they might have to pay tax. How exactly did anyone think it worked?! It's a gain! If you didn't want a huge one you should have sold it years ago!

Macron: I think that you're really missing the point.

I'm not at all worried about paying tax when I eventually sell.
What I meant by 'everyone loses' is that my tenant loses because he would like to buy my place but it'll cost me too much to sell the place to him and I lose because I'd like to do a favour for someone that I consider a friend,

There was no intent to avoid tax. I was simply asking when I'd have to pay it. As hellorent said above, If I sell a BTL just to buy another then there hasn't really been a gain. It seems that that's not the case.

And .. I have no idea where you got ' tickle to avoid estate agent fees' from. FWIW, it was a sizeable discount to help someone who'd been a good tenant for a number of years.

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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

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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.

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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

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ooid said:

Can you not release equity from the property and buy the other one? If you are feeling charitable you can always maintain the rental growth lower than the market rate for your current tenants.

It is really not your responsibility to make your tenant home-owner, while they are slapping you with a massive CGT. - imho-

My wish was for the tenant to be able to buy the house where he's living. It suits him for a number of reasons. And, if it weren't for CGT I'd be happy to accomodate him.
If he wants to buy - and he should - then he'll have to go to market. Unfortunately, he'll have difficulty finding a place as well suited to him and, to be honest, dealing with estate agents, solicitors etc isn't his strength.

But thanks for suggestion, always good to look at problems from another perspective

Edited by Retd on Sunday 31st March 19:17