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Selling second home, buying buy to let - CGT?
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Chris Green
Posted: 30 July 2019 12:35:04(UTC)
#1

Joined: 30/07/2019(UTC)
Posts: 2
If I reinvest proceeds from sale of our second home into a buy to let property, do I have to pay capital gains on the sale?
Purchased for £250k with £160k interest only mortgage 9 years ago, value now £400k.
Intend to a) buy a buy to let in different area for £400k max with £300k interest only mortgage, b) buy similar residential property with residential mortgage of same value.
Any suggestions?
Thanks
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Frank Wright
Posted: 30 July 2019 16:35:22(UTC)
#2

Joined: 04/03/2013(UTC)
Posts: 42
Yes - generally applies to the capital gained on selling any asset that's outside of a tax wrapper (SIPP, ISA, etc.).

There are a number of original expenses that you might be able to set off against the sale price. There's loads of info on the web to search for - www.gov.uk/tax-sell-property is one place to start which has a calculator for estimating what you'd owe, also Which have guidance. I'm sure the solicitor you'd need for the conveyancing would be able to advise you.
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D Bergman
Posted: 30 July 2019 16:53:03(UTC)
#3

Joined: 22/03/2018(UTC)
Posts: 1,308

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Chris Green;88023 wrote:
If I reinvest proceeds from sale of our second home into a buy to let property, do I have to pay capital gains on the sale?
Purchased for £250k with £160k interest only mortgage 9 years ago, value now £400k.
Intend to a) buy a buy to let in different area for £400k max with £300k interest only mortgage, b) buy similar residential property with residential mortgage of same value.
Any suggestions?
Thanks


If the property was originally purchased as a second home then you will have to pay CGT. The fact that you are reinvesting the proceeds in another property makes no difference.

If the second home was lived in by yourselves as a primary residence for a certain period, you may be able to claim certain reliefs, but this is best dealt with by a qualified accountant.

The amount and rate of CGT (18% or 28%) depends on your total income. If the property is owned by more than one person, then of course you can use both capital gains allowances. You can also reduce the amount payable if you sell other assets (shares, etc) that are not in an ISA or SIPP and that have lost value since you bought them.

For a basic way of figuring the tax payable, check out: https://www.gov.uk/tax-s...erty/work-out-your-gain

But a good accountant will be really useful - and their fees are tax deductable!
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1 user thanked D Bergman for this post.
Tim D on 30/07/2019(UTC)
NoMoreKickingCans
Posted: 30 July 2019 21:04:06(UTC)
#4

Joined: 26/02/2012(UTC)
Posts: 4,470
Yes - good accountant and/or good solicitor.

In some special circumstances I believe it might be possible to spread the sale over a tax year end and therefore utilise two years worth of capital gains tax allowance.

If you need to reduce your annual income to reduce CGT at 28% then one approach is to make larger contributions into a pension which then reduces your income.
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Optomist
Posted: 31 July 2019 11:15:45(UTC)
#5

Joined: 28/07/2018(UTC)
Posts: 13
Wouldn't have thought accountancy fees would be deductible in this instance as they comprise giving advice and preparing the return which is not connected to the property itself.

Nor can Capital Gains Tax be spread over two years.

You might want to sell between 6 April and 30 April because it is the start of a new tax year and the hopefully higher capital gains tax allowance will be available from 6 April.

However, from 6 April 2020 there is a new regime which requires sellers of second homes to report the gain and pay the tax within 30 days of the sale. A sale before 6 April 2020 will require any tax to be paid by 31 january 2021.

Transfer the part of the property (50%) by Deed of Gift to your spouse- your solicitor will do that for you - so that they use their capital gains tax allowance (so that 2 x £12000 is tax free) and in some cases pays tax at 18% (basic rate taxpayers) instead of 28%.(higher rate taxpayers)
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Jim S
Posted: 31 July 2019 12:07:44(UTC)
#6

Joined: 08/12/2016(UTC)
Posts: 530
I believe transferring part of the property to your spouse would incur stamp duty (3% ??) on that 50%, as you own more than one property. It may still be worth doing though.

As suggested already, maxing out your pension contribution in the same tax year that you sell is probably a good move if it gets you on the lower rate of cgt.

Check allowances carefully to make sure you understand what can be offset. Eg. If you spent money doing the place up and you haven’t already offset that (against rental income in the same tax year the work was done) you may be able to include that in what you paid
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Optomist
Posted: 31 July 2019 16:36:49(UTC)
#7

Joined: 28/07/2018(UTC)
Posts: 13
Jim S;88136 wrote:
I believe transferring part of the property to your spouse would incur stamp duty (3% ??) on that 50%, as you own more than one property. It may still be worth doing though.

As suggested already, maxing out your pension contribution in the same tax year that you sell is probably a good move if it gets you on the lower rate of cgt.

Check allowances carefully to make sure you understand what can be offset. Eg. If you spent money doing the place up and you haven’t already offset that (against rental income in the same tax year the work was done) you may be able to include that in what you paid




Regarding the Stamp Duty, what you do not make clear is that it would be an ADDITIONAL 3% over the normal rate and NO this does not apply in the event of a Deed of Gift to spouse.
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ANDREW FOSTER
Posted: 31 July 2019 18:32:18(UTC)
#9

Joined: 23/07/2019(UTC)
Posts: 8,124


For my tuppance worth the market at present makes buy to let a rather high risk low return investment....

The higher stamp duty,high costs of insurance and inspections combined with a property market at its peak all point to potentially large downside and only a modest upside.

Plus the possibility of a nice Corbyn "Property Tax" at some point...

I'm not suggesting what is right or wrong for you, but curious why you would chose that over equity/bond investments where you can hop out at the first sign of trouble....
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Jim S
Posted: 31 July 2019 21:54:23(UTC)
#8

Joined: 08/12/2016(UTC)
Posts: 530
Optomist;88164 wrote:
Jim S;88136 wrote:
I believe transferring part of the property to your spouse would incur stamp duty (3% ??) on that 50%, as you own more than one property. It may still be worth doing though.

As suggested already, maxing out your pension contribution in the same tax year that you sell is probably a good move if it gets you on the lower rate of cgt.

Check allowances carefully to make sure you understand what can be offset. Eg. If you spent money doing the place up and you haven’t already offset that (against rental income in the same tax year the work was done) you may be able to include that in what you paid




Regarding the Stamp Duty, what you do not make clear is that it would be an ADDITIONAL 3% over the normal rate and NO this does not apply in the event of a Deed of Gift to spouse.


Very Interesting, can you provide a link to HMRC or another source where it’s stated that deed of gift to spouse in such a situation would be exempt from the 3% stamp duty (and why)? I was advised when remortgaging last year that transferring 50% to spouse would be subject to that stamp duty, even though gifts to spouses are normally not taxable.
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Dennis .
Posted: 04 August 2019 09:33:31(UTC)
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Joined: 26/12/2007(UTC)
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I live have lived for over 40 years in a Dorset coastal village and bought up my family there. Over the last 20 years the community has been destroyed by a huge influx of second homers and holiday lets. Youngsters can't afford to live here. In winter the local shop closes from November to March, Post office now long gone etc. Unfortunately I am not able to wish you well in your endeavors.
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2 users thanked Dennis . for this post.
Luca Brasi on 04/08/2019(UTC), Tim D on 19/08/2019(UTC)
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