Buy To Let Properties and Capital Gains TaxWritten on June 23, 2016 by Kirk Rice LLP
The Question:
We have 3 Buy-to-Let properties one of which we plan to sell. Historically, we increased the mortgage to help purchase our other properties. We now owe £147,000 and expect to sell for £220,000 giving a profit of £73,000. We purchased it in 1999 and understand the longer we have had the property for the less tax we pay. Can you give us a ball park figure; before selling it as it would be useful to know?
Kirk Rice LLP answers:
I can explain the process for calculating the tax, but I am missing a crucial piece of information and so a tax figure; even a ball park one is not possible. The tax payable upon the sale of a Buy to Let property is Capital Gains Tax (CGT) and this is based on the gain realised. The gain is NOT the difference between the sale price and the mortgage (in your case the £73,000). It is based on the sale price LESS the original purchase price which I suspect is significantly lower than the £147,000 mortgage i.e. the gain is likely to be higher than £73,000.The purchase price is the crucial piece of information I am missing.
To help explain the process though I will assume you purchased it for £100,000 and sell for £220,000. The gain in this instance is therefore £120,000. You can deduct from this any expenses associated with buying and selling the Buy to Let property such as stamp duty, conveyancing fees, estate agency fees. I will assume this totals £10,000 reducing the gain to £110,000. You can also deduct any money spent to improve the value of the property such as a new extension or loft conversion. General decoration and repairs do not count as these are maintenance costs and would be used to reduce the liability to Income Tax on the rental income. I will assume you spent £18,000 on a loft conversion reducing the gain to £92,000. This gain is then split between you both 50/50, and so you each have a gain of £46,000. From this you can deduct your CGT Allowance (assuming it has not been used against other gains in the Tax Year) of £11,700. This reduces the Taxable Gain each to £34,300. This will be taxed at 18% for Basic Rate Tax Payers and 28% for Higher Rate Tax Payers.
Please note the taxable gain may put a Basic Rate Tax Payer into the higher rate. The EXAMPLE tax would be c£6,174 to £9,604 each. Taper relief is no longer available. This reduced the amount of gain that was subject to tax the longer you held the investment. To be sure of your tax liability you should meet with an accountant.
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Correct as of 28/2/2019
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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