Landlords Exit Strategy – Readers CGT Question

Hi Chris

I will do my very best to answer this question but please note that I am not a qualified tax specialist. Thank you for the compliments by the way. To make contact with the tax advisers that I use please see >>> http://www.property118.com/index.php/landlord-tax/

If you sell your former homes within 3 years of having lived in them, my understanding is that no CGT will be payable.

Instead of selling them though, have you considered refinancing them? You could offset interest on new buy to let mortgages against the rental income as an expense - subject to the loans not exceeding the purchase prices. You may also be able to restructure the ownership in order to be even more tax advantageous going forwards too.

If selling is your chosen option, not that timing of sales is also a major factor if you want to maximise your CGT annual exemptions. For example, selling one property per tax year.

A very similar question came up on another thread and Neil Barlow, who is a senior tax adviser with the accountancy form I use, gave this response in respect of CGT on former residences.

"The basic Capital Gains Tax treatment on the disposal of a main residence is that any gain is
subject to Principal Private Residence Relief and therefore exempt from CGT providing the property has been the only or main residence throughout the entire period of ownership. This is subject to various provisions to cover situations such as periods of absence, owning two or more residences and garden or grounds which exceed half a hectare (approximately 1 acre).

"Providing a property has qualified as the only or main residence at some time during the ownership period, then the last three years of ownership always count as a period of residence.

"In addition a Residential Letting Relief is available in respect of a property which has been let but which has also been the only or main residence at some time during the ownership period. This relief is the lower of £40,000 and an amount equal to Principal Private Residence Relief due.

"These reliefs are time apportioned over the entire ownership period. For example, say a jointly owned property had been owned for 10 years and is sold making a gain of £100,000. The property had also been the only or main residence of the joint owners for the last 12 months of ownership. The capital gains tax computation would comprise the following:

Gain £100,000

Private Residence Relief (3 years out of 10) -£30,000

Residential Letting Relief (lower of £40,000 and Private Principal Residence Relief) -£30,000

Capital Gain after reliefs £40,000

Less 2 capital gains annual exemptions provided not already used -£21,200

Chargeable capital gain £18,800 (taxable at either 18% or 28%)

I hope this helps.

With kind regards,

Neil Barlow FCCA ATT

If you sell the let properties you will have to calculate the capital gain accruing on each one based on the sale price at the date on which contracts are exchanged less the original cost and any property improvements (not ordinary repairs) less legal costs etc. The mortgages are irrelevant for this purpose.

Hi Bill, I agree. Do you concur with Neil Barlow's advice in respect of the basis of calculation? (see text embedded into my post below). Also, what do you think about my alternative suggestion of refinancing and re-structuring ownership instead of selling? Have you seen this strategy? >>> http://www.property118.com/index.php/landlords-tax-planning-strategy/31907/

Hi Mark

Yes, I broadly agree about the tax reliefs available in respect of private residences but the way I read the CGT question, it was about the tax consequences of selling the let properties.

The refinancing point should not be a problem as long as the amounts raised do not exceed the original cost of the let properties plus capital improvements.

Bill

(biblio-bill)

bill@william-marshall.co.uk

01348 873044

William Marshall & Co
Incorporated Financial Accountants
Nine, Hamilton Street
Fishguard SA65 9HL

and

Preseli Estates Ltd
Nine, Hamilton Street
Fishguard SA65 9HL

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Bill

I don't understand your point, we are not discussing private residences here. We are discussing Buy-to-Let property investments.

You said "The refinancing point should not be a problem as long as the amounts raised do not exceed the original cost of the let properties plus capital improvements." That's why I requested your opinion on this linked article >>> http://www.property118.com/index.php/landlords-tax-planning-strategy/31907/

You wrote 2 days ago in this thread, "If you sell your former homes within 3 years of having lived in them, my understanding is that no CGT will be payable".

That opinion can only refer to a private residence if all the other conditions for private residence relief have been fulfilled.

You also wrote 2 days ago, 'A very similar question came up on another thread and Neil Barlow, who is a senior tax adviser with the accountancy form I use, gave this response in respect of CGT on former residences'.
As you say we are not discussing private residence relief but your post seems to be aimed at that relief!

Perhaps I have missed something from an earlier post

Bill

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does the fact that the propeties were all at one time or another our priciple homes affect the way CGT is calculated

Ah, I think I see where the confusion has crept in. In the main article Chris wrote "My wife and I have a small portfolio of property which has been built up over the years by keeping on our residences rather than selling to finance the new ones. None were purchased on Buy to let mortgages." I took this to mean that he had chosen to let those properties, hence the guidance I have offered is based on that scenario.

Hi Chris, yes it does, hence my first response. Note that just above the comments section there is a label called "Discussion". If you click the arrow to the right you have an option to sort comments to show each discussion thread in the order posted, i.e. Newest or Oldest. I hope that helps.

Hello.
The Residential Letting Relief is applicable to each of the owners, so if owned jointly it can be claimed twice.
I had a similar situation in the past and my business accountant only claimed this once for a CGT assessment, however, a couple of years later a property accountant told me of the double relief and when I wrote to HMRC they agreed and a refund was made.
I hope this helps.

Regards, Chris