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Selling a Rental Property

3 replies

PuggyMum · 28/10/2021 11:02

Hi, I hope I've posted in the right place! Hoping someone with an accountancy head can confirm for me please what the tax situation will be if I sell my rental property.

It was our main home bought in 1999 for £72500. We upgraded over the years and added to the mortgage which is £162000. I don't have receipts for the work done as we were living in it and never intended to rent it out! But we did put in for planning permission for the work done so this is all on record.

We moved house in 2008 and we exchanged on our purchase and the sale fell through so my friend has rented the property since. She is now in a position to buy it from me. We're tied in to a mortgage to 2023 too.

Am I going to get clobbered for capital gains tax against the original purchase price? We borrowed from PIL for the deposit for the new house so it's a bit of a worry.

I can't find examples on the gov website for my scenario!

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PatriciaHolm · 28/10/2021 11:47

It' is, as you say, complicated. It's probably worth getting an accountant to check it over, as various things will impact what you pay, for example whether you are a higher rate taxpayer, or whether you have already used your Capital Gains allowance for this year. You also need to base it on market value of the home, even if you discount it because you are selling to a friend.

In essence, you'll get relief for the period you lived there and the past nine months, so if you sold it now, you've owned it for 22 years, but get relief for 9 years + 9 months.

You can also offset expenditure on improvements, and your yearly CGT allowance.

So, for example, if the market value of the property is £200,000 now, there is an increase of £127,500. Take away, say, £10,000k on improvements = £117,500.

9year 9 months/22 years = 44%, so you get relief on that of 44%. So 117,500 * 0.56% = 65,800 left to pay tax on.

Your yearly CGT allowance is 12,300, so that would bring the taxable gain to 63,500. On which you pay 18% if you are a basic rate taxpayer, 28% if you are a higher rate payer.

PatriciaHolm · 28/10/2021 11:48

Sorry, 65,800 - 12,3000 = £53,500!

PuggyMum · 28/10/2021 13:41

Thank you so much for this.

Basic rate taxpayers and we won't use the allowance for anything else!

We spent nearly £100k on doing it up and since then done things like new boiler and decking but have no evidence of the spend when we lived there.

We've always wanted to sell but my friend has had a rollercoaster over the years so can only just afford to buy.

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