Tax and Renovating a new home

[jennyknitting]

I recently sold a buy to let property and want to buy my main home with the profit. If I only spend a portion of the profit on the new house I presume I will have to pay income tax on the remainder. Is there some way I could use some of the profit for renovation works eg an extension/kitchen/bathroom/re-wiring without penalty?

[bd6759]

If the BTL was an investment property you will pay capital gain tax, not income tax, on the whole of the gain. There is no deduction for spending the gain on another house.

[jennyknitting]

Thanks. I already know about the Capital Gains Tax, but I think I read somewhere that if I haven't spent that profit on my main residence before 12 months goes by that I would then have to pay income tax on it. If that is the case there would be a penalty for not spending all of it on a house. Would I be able to use a portion of my house money on renovation costs as this is not strictly speaking part of the sale price?

[bd6759]

Capital gains tax is paid on capital gains.

Income tax is paid on income.

You do not pay both on the same gain or profit. You can spend the proceeds on whatever you want.