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Where Taxpayers and Advisers Meet

CGT on re-mortgaged property

Ady
Posts:2
Joined:Wed Aug 06, 2008 3:03 pm

Postby Ady » Sun Apr 06, 2003 12:32 pm

I am intending to re-mortgage a property that I am currently letting in order to raise capital to invest in a further property, and my intention is to continue to do this over a number of years as property and rentable values increase. I am concerned, however, that there will come a point when the equity in a particular property would not cover the tax due on capital gain from the original purchase value to the current value.
I would be very pleased to know whether my understanding is correct and if so is there a way to avoid this situation occurring.
Thank you in anticipation.

Neale
Posts:39
Joined:Wed Aug 06, 2008 3:02 pm

Postby Neale » Sun Apr 06, 2003 2:09 pm

CGT is payable on the increase in value (subject ot allowances and adjustments) but with no reference to loans taken.
CGT only arises when the asset is deemed to have been disposed of or realised, so remortgaging won't usually trigger a gain.

Prevention is better than cure so take advice on structure now, since Income tax on rental receipts may also be an issue.

neale@coules.com

Ady
Posts:2
Joined:Wed Aug 06, 2008 3:03 pm

Postby Ady » Mon Apr 07, 2003 11:21 am

What concerned me was that I might find myself in a position whereby I would have to maintain ownership indefinately as to dispose of a particular property would result in such a gain that the equity released on disposal would not cover the tax due.

Neale
Posts:39
Joined:Wed Aug 06, 2008 3:02 pm

Postby Neale » Wed Apr 09, 2003 10:31 am

By structuring your affairs you may be able to mitigate potential exposure CGT, but the best planning is usually made well in advance, rather than just before sale.

With regard to your specific concern, if you are remortgaging existing properties to provide deposits for new ones, then I suppose it is possible a postiion could arise where sale of a remortgaged property could trigger a tax bill greater then the equity released on sale.Under these circumstances you could consider remortgaging other properties if they are available, or in worst case may be forced to sell other properties which you would otherwise not wish to at the same time. The likelihood of this 'trap' seems fairly low to me, but you could run a few scenarios to test how much you might be asked to pay.

neale@coules.com


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