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apom

Capital Gains Tax..

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Currently the prices are not dropping faster then capital gains tax against profit is dropping..

I know someone with a property renting to students..

Huge profit as he has had it for years..

Selling next when CGT drops the tax burden..

Perhaps this is holding investors in..

long term invstors..

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Currently the prices are not dropping faster then capital gains tax against profit is dropping..

I know someone with a property renting to students..

Huge profit as he has had it for years..

Selling next when CGT drops the tax burden..

Perhaps this is holding investors in..

long term invstors..

As I often say, and am quoted as saying, one should never let the tax tail wag the investment dog.

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Currently the prices are not dropping faster then capital gains tax against profit is dropping..

I know someone with a property renting to students..

Huge profit as he has had it for years..

Selling next when CGT drops the tax burden..

Perhaps this is holding investors in..

long term invstors..

apom, maybe you can answer this one for me........

these people that have decided to rent out because they couldn't sell, what is their CGT liability (if any). Presumably they've taken out BTL mortgages and will be taxed on any profits from income, but does it change the "status" of their house as it would if they were a professional landlord ???

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these people that have decided to rent out because they couldn't sell, what is their CGT liability (if any). Presumably they've taken out BTL mortgages and will be taxed on any profits from income, but does it change the "status" of their house as it would if they were a professional landlord ???

No CGT on rental income, but you are liable for Income tax. There is no 'status' for property for CGT purposes, except that the longer you personally have lived there, the less CGT you are liable for, as you are not liable for Capital gains on your primary residence.

CGT is the main reason why I don't sell my BTL house, it strips out virtually all profit as until recently I was on interest only. What a monkey.

PS: Before you lynch me, I didn't BTL, but circumstances led me to rent a house I owned in one city when I moved to another... haven't bought since!

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No CGT on rental income, but you are liable for Income tax. There is no 'status' for property for CGT purposes, except that the longer you personally have lived there, the less CGT you are liable for, as you are not liable for Capital gains on your primary residence.

thanks, but presumably the new house you buy when you move out of the one you've rented out, becomes your primary residance ? now you effectively own two houses, so what are the tax implications when it comes to sell property no. 1 (the BTL) ???

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Ok. When you sell property 1, your BTL, you are now liable for CGT. However you don't pay the tax on the full amount, but a proportion of it based on how long you've lived there. I don't have the exact calculations, but essentially if you owned the house for 10 years, let for 4, you are liable for CGT on 40% of the CG, the other 60% is tax free.

NB: These are not accurate calculations, just a guide to how the principle works.

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Ok. When you sell property 1, your BTL, you are now liable for CGT. However you don't pay the tax on the full amount, but a proportion of it based on how long you've lived there. I don't have the exact calculations, but essentially if you owned the house for 10 years, let for 4, you are liable for CGT on 40% of the CG, the other 60% is tax free.

NB: These are not accurate calculations, just a guide to how the principle works.

ok, thanks. I've seen quite a few props in my area go from for sale now to let and wondered if the people doing it were aware there would be a tax implication further down the line.

cheers

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Ok. When you sell property 1, your BTL, you are now liable for CGT. However you don't pay the tax on the full amount, but a proportion of it based on how long you've lived there. I don't have the exact calculations, but essentially if you owned the house for 10 years, let for 4, you are liable for CGT on 40% of the CG, the other 60% is tax free.

NB: These are not accurate calculations, just a guide to how the principle works.

The calculation for the ratio is:-

time rented out - 3 years / total time you've owned the house.

i.e. if you owned the house for 7 years and its been let for 4 your CGT liability is 1/7 of the difference between the sale price and the index linked purchase price. on that basis a CG of over roughly £49,000 would be required before any tax was due.

The calculations are however a right faff. Get your local tax office to do it as my accountant got it incorrect with both attempts he tried.

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IMD

Are you sure you have calculated the CGT correctly.

My information is that:

a) You get 36 months after you have moved out of a main residence with no CGT, ie if you lived there for 3 years and rented for 3 years would have no cgt liability, and for example if you sold after owning for 10 years would only pay 40% of the Capital Gain.

B) You get £40000 off the CGT for "letting relief".

c) Taper relief BTL are non-business assets and qualify for 60% relief after 10 years.

d) You then get your CGT allowance of £8500.

I'm not sure which order to apply these so paying some money to a tax advisor could save a load.

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Guest Daddy Bear

I am correct in thinking that if you have lived in a property ( e.g. for a month) and then have then rented it, as long as you sell it within 3 years you are not liable to Capital Gains Tax? Is this called the three year rule?

Surely there must be loads of new BTL's out there who bought a flat in 2002 made shed loads of cash and now want to sell it before there three years are up to avoid CGT on their huge capital profits - before the crash?

Helping the crash on its way.

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Here are some facts:

No CGT on main residence as is widely known.

No CGT on what was previously your main residence for the first 3 years after you first let it out.

You can therefore effectively have 2 main residence allowances for 3 years.

Taper relief decreases CGT from 40% to 25% after 10 years of ownership.

Letting a place for 2 years as a holiday let, changes the status of the property to a business and CGT on business assets is 10%.

Non UK residents don't pay CGT in the UK, but may be liable in the country they are residents of.

If a non-resident earns a CG, they will have to pay the tax for it if they return to the UK as a resident during the 5 years after the CG was realised.

www.taxationweb.co.uk

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Letting a place for 2 years as a holiday let, changes the status of the property to a business and CGT on business assets is 10%.

Im probably misintepruting that but isnt it saying then that BTL is not a business? :blink:

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I suspect CGT is the main reason why BTL would wish to hold.

personally I'd rather pay 40% of profit less expenses on a house sold at top of the market,and put the money made to better use elsewhere.

I don't think the recent entrants to BTL "investment" have grasped the concept of locking-in profits yet.

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Here are some facts:

No CGT on main residence as is widely known.

No CGT on what was previously your main residence for the first 3 years after you first let it out.

You can therefore effectively have 2 main residence allowances for 3 years.

Taper relief decreases CGT from 40% to 25% after 10 years of ownership.

Letting a place for 2 years as a holiday let, changes the status of the property to a business and CGT on business assets is 10%.

Non UK residents don't pay CGT in the UK, but may be liable in the country they are residents of.

If a non-resident earns a CG, they will have to pay the tax for it if they return to the UK as a resident during the 5 years after the CG was realised.

www.taxationweb.co.uk

So, what effect does that have on the calc. I did earlier for your BTL v. cash?

I suspect it makes the case for selling even stronger. Your risk premium/payment for hassle of managing your property must only be a few hundred quid a year.

Are you confident that either rents or house prices are going to increase significantly? because you don't seem to have any other reason to hold property.

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  • 337 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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