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Where Taxpayers and Advisers Meet

CGT on appreciation prior to BTL

quinla01
Posts: 2
Joined: Mon Sep 28, 2015 7:21 pm

CGT on appreciation prior to BTL

Postby quinla01 » Mon Sep 28, 2015 7:59 pm

I've lived in a flat for 5 years and its time to upgrade. I'm torn between selling the flat and buying a house using some of the capital I have made on the flat or keeping the flat as a BTL.

I'm better with numbers than words so here goes.

11/2009 - I buy a flat @ £380,000 - Do lots of work on it over next 5 years
09/2015 - Flat valued @ £800,000
Capital Gains - £420,000

If I was to buy a new house and keep the existing property as BTL. Let's say in 2 years time I want to sell the BTL but it is still valued at £800,000 will I be hit with GCT on £420,000 even though since renting it out it hasn't increased in value? What about in 5 years time or 10 years time if it still hasn't gone up in value?

I have made the capital gains whilst it has been my only dwelling so it would seem fair that I only pay CGT on any appreciation that occurs from the day I start renting the property. At the same time I have no idea how the government could manage the process if this were the case. Part of me thinks take the £420k and run tax free.


Thoughts?

Thanks in advance.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: CGT on appreciation prior to BTL

Postby King_Maker » Tue Sep 29, 2015 12:21 am

The value when it is rented out is not relevant.

Any gain is measured from acquisition to disposal, and is split into exempt and non-exempt periods + Letting Relief.

Have you read HMRC's Help Sheet HS283 on the subject?

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

[For disposals after 5 April 2014, the exemption for the last 36months of ownership is reduced to 18 months.]

quinla01
Posts: 2
Joined: Mon Sep 28, 2015 7:21 pm

Re: CGT on appreciation prior to BTL

Postby quinla01 » Wed Sep 30, 2015 5:03 pm

Thanks,

I have read that article you reference but I am having problems getting my head around the calculations. I think because we have made such a large amount of money in such a short term we may be his with a hefty CGT bill if we were to sell within 3-5 years and the property didn't increase in value.

I'm back to thinking walk away with £420k tax free and then invest that money wisely.

Ultimately, I think the point here is I need to speak to a tax accountant / advisor.

Thanks again,
Andrew

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: CGT on appreciation prior to BTL

Postby wamstax » Sat Oct 03, 2015 2:29 am

think that your best avenue is to speak to a tax adviser that can look at all the angles and potentially assist you in deciding the best way forward. However remember that HMRC/Govt could change the whole CGT ballpark at a whim.

You mention a £420K tax free gain but presumably if you "Do lots of work on it over next 5 years" then your gain would factually be a lot less than the Original cost deducted from the potential selling price.

While acknowledging that the whole rules about Main residence relief could change overnight the availability of "Lettings relief" - Max £40K and the final 18 months being tax free as relating to Main Residence relief it would only be if you could read into the future exactly what the property would sell for and the reliefs that would be available that you could determine if it would be more advantageous to take the money and run or hold on for a potentially bigger gain and also tax free if you decided to let the property out before disposal

Hope that this helps some
regards and hope this helps
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King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: CGT on appreciation prior to BTL

Postby King_Maker » Sat Oct 03, 2015 11:14 am

Yes - impossible to know what is going to happen on the property tax front, especially after George's BTL bombshell.

PPR relief seems to be a prime candidate. Although total removal is unlikely - not a great vote getter - restriction to (say) £250,000 ( or whatever is the average value at the time) is feasible. If home ownership in the UK continues to decline, this could happen sooner rather than later.

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: CGT on appreciation prior to BTL

Postby Peter D » Sat Oct 03, 2015 3:03 pm

Here are some number for your first scenario of renting it out for 2 years then selling:
Purchase 380,000 14/11/2009
Disposal 800,000 13/11/2017
Total Gain 420,000
PRR 393,474 89 95
Capital Gain 26,526
Lett Relief 26,187 Qual Days 182
Net Gain 339
CG Allow 11,100
CGT 0 0


Here it is for 5 years with no increase in value :
Purchase 380,000 14/11/2009
Disposal 800,000 13/11/2019
Total Gain 420,000
PRR 314,118 89 119
Capital Gain 105,882
Lett Relief 40,000 Qual Days 912
Net Gain 65,882
CG Allow 11,100
CGT 0 15,339

CGT Bill 15,339

Here it is for the flat sold for £900,000:
Purchase 380,000 14/11/2009
Disposal 900,000 13/11/2019
Total Gain 520,000
PRR 388,908 89 119
Capital Gain 131,092
Lett Relief 40,000 Qual Days 912
Net Gain 91,092
CG Allow 11,100
CGT 0 22,398

CGT Bill 22,398


This assumes the tax laws do not change and you are a higher rate tax payer.

Are you the sole owner of the property. ?

Regards Peter


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