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  • Tax

    Minimise Capital Gains Tax - move into BTL?

    Hi All

    Really would appreciate your feedback on this issue.

    Got a investment property with so much equity in it that I should really sell it and release the capital.

    At 28%, this exposes me to a whopping great CGT bill off £120,000.

    I've been told that, i can move into the property and make it my MAIN residence for 18mths, then sell it with ZERO Capital Gains payable. Is this true?

    If so, what are the steps that I need to take to ensure HMRC are satisfied.

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    If you have lived in a property for any period of time, you get what is known as PPR relief.

    It would reduce your GGT liability, but not get rid of it completely.  If in doubt, you can just ring HMRC and they will advise you, but I do not believe what you were told in your original post is correct.

    Also, if you liken your investment property to a cow, I really struggle to see why you would wish to sell it.

    You can milk it for equity while still keeping the cow.  Just get a remortgage to a higher loan to value, a further advance, or a second charge loan to release the equity.

    If it is a significant amount of equity, you may even be able to bridge against it and essentially take out a large chunk and use that to buy another property for cash.  Then you can take out a mortgage on that new property and redeem the bridging loan.

    If you contact the team at PT Brokers on 0333 363 6507, they will advise you how to access the equity without selling the asset.

    Here's a summary:

    Selling the property

    Incur CGT

    Selling costs

    Lose an income-producing asset

    If you don't sell quickly, potentially ending up with a void property while you're waiting to sell as tenants may well hand in their notice when they hear that you are selling.

    Keeping the property and releasing equity:

    No CGT

    No selling costs

    Keep the asset to carry on producing income and maybe accrue more equity

    No up-setting of tenants

    Hope that helps bring clarity to your options?

    P.s. There is one other option and that is sell the property to a REIT for a combination of shares and equity.  Learn more here - BTL REIT

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    Totally here what you’re saying but surely remortgaging simply means you’re just increasing your borrowing, increasing the mortgage and reducing the yield.
    Actually the amount of Equity I'd like to take out would probably mean the rent wouldn't cover the Mortgage, hence selling would be the best option.

    Won’t have any voids etc. as I’d physically move in to the rental making it my Main residence and rent out my current house.
    that's if this strategy is viable of course.

    Is there any other strange or unusual ways to considerably minimize the CGT hit?



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    Hi - it depends on a few things.

    First of all -

    Did you live in the property before letting it - and for how long?

    What was the date of purchase?

    The purchase price plus legals and stamp duty etc?

    Cost of improvements to the property?

    Potential sale price?

    Secondly -

    Do you own another property where you've been living before and during owning, letting and living in the BTL property?

    If you lived there prior to letting, you could be eligible for lettings relief up to £40k.

    To get any CGT exemption under the ppr rule, you will need to have lived in it as your main home prior to letting or afterwards or both.

    So, how long do you envisage living there before selling?

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    bought the property back in 1999 hence have quite a bit of Equity in the property.
    Never lived in it as my main residence.

    Reason for selling:-
    Release the Equity but buy back another at a cheaper price (in Europe, North of England) etc with similar yield.
    Win win situation. So, I'd realised all the Equity so I actually use it and totally enjoy my life without damaging the income.
    If I buy back wisely, I should keep the legal and stamp costs down to a low. Minimising, or avoiding the CGT hit compensates for all the disadvantages as its a £120k bill.





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    I'm sure our friendly tax expert, Debbie Franklin, will be on here soon to put you straight but, from the little bit of info you've given, I don't think it's going to work out as you'd like it.

    The best that you're going to achieve by living in the property as your PPR is, perhaps, that you might be there for, say, 6 months, which (I think?) could entitle you to the last 18 months of ownership tax free. So, assuming you buy in Feb 1999, move in Aug 2018 and sell Feb 2019 you'd have made £430k but, after deducting all costs of £50k, that drops to a £380k gain. Divide that by 20 yrs = £19,000 gain per yr minus £28,500 for the last 1.5 yrs = £351,500 less 2 lots of £11,700 allowance = £328,100 to tax @ 28% = £91,868.

    Take this purely as a bit of food-for-thought from someone who's only got a little knowledge about tax so you should really get some proper advice and guidance. As I mentioned before, that will probably come from DF and I reckon PT's tax advice partners, RITA, will also be along soon too.


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    Almost there but also letting exemption of the lower of the PPR relief and £40,000 per owner.

    Conversion to FHL for a while mentioned below could work to get 10% tax rate.

    Deb

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA


    hi Debbie,

    re fhl, what are the requirements eg for how long?  are there occupancy rate requirements?

    thanks.

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    I can e mail you a factsheet if you e mail debbief@peplows.co.uk?

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA

    Thanks Debbie - I knew you'd come in to help.

    Wow, £40,000 letting exemption per owner!

    But would a married couple count as 1 owner?

    And the exemption still allowable when you haven't lived there before letting?

    Also, sorry, I missed the FHL bit. But how long would that need to be?


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