Selling second property

[Alwaystired2023]

Hi all

hoping for some advice from some wise mners on here

title makes me sound wealthy but I am so not and really don't want to make a silly financial decision

think I could hopefully work this out with MSE research, Google and hopefully some advice here

i have a second property I rent out in addition to my main residential which I lose about £500/m on due to SVR mortgage and I need to sell

it's mine from before meeting partner, has a big mortgage on it and minimal equity, I was just trying to see if I could keep hold of it for DC but it's just not going to work out due to the above

i think if I sell it as is, in my sole name, I will pay more tax than if I sold if it was in a business name or if I added my partner as another owner

does anyone know if that is okay to do? Is it tax avoidance / evasion? I have about 6 months before current tenancy ends and just trying work out the best way to do it

thanks for any advice you can offer

Gosh sorry I just went on MSE and it said 'if you are selling a BTL there may be tax implications which we won't run through here pls check HMRC website'

my flat has a residential mortgage with consent to let due to recent circumstances of trying to rent it out etc which hasn't worked out

If you transferred ownership to a ltd company you would be liable for stamp duty. If you transferred it or part of it to your partner you would no longer have control over it. You are only charged CGT on the gain less allowable expenses and allowances. It may be less than you think. There’s no whizzy scheme where you can avoid this legally, otherwise everyone would be doing it!

If it was your main residence at one point you will only pay capital gains tax for the period that you rented it out minus the last 9 months.

Oh thanks both for answers, and I did read that about the length of tenancy thing your right it might not be as much then

i just want to make sure I'm being as thoughtful as possible with this sale

If you give half of your property to your partner, assuming not married, you are liable for CGT on the half of which you've disposed (if the gain is above the annual exemption). It's not a way to reduce your tax.

Transferring it to a business also has tax implications, whether gifting or selling to a business you are still disposing of an asset and potentially liable to CGT.

I don't deal with SDLT though so I'll leave that to someone more knowledgeable.

Thanks so much, I thought I had read that you have your own allowance but if the property is owned by two people that both allowances are taken into account before the taxable amount :/

Yes but in order to give your partner half of your property you have to dispose of it. The act of you giving away half your property is the disposal and you're liable for CGT on that transaction. It would be different if you were married or if you'd bought it together initially, but to go from 100% ownership to 50% in this scenario you've effectively "sold" half the property, even if no money changes hands.

Whatever you do, when you sell it, declare it to the taxman within 60 days
https://www.gov.uk/report-and-pay-your-capital-gains-tax

Just mentioning it as I wasn't aware.

Thanks so much, didn't realise that about the disposing sitch - we aren't married we met a bit later in life and had children quite quickly etc

Thanks on 60 days I didn't realise, think it sounds like I just need to bite the bullet and get on with it !

As others have said, you only pay tax on the gain in value, not the full sales proceeds. If you don't have much equity, and used to live in it, it may not be as much.

So say you bought it for £85k. You sell it for £100k, less Estate agent costs of £2k. So the gain is £98-£85 = £13k.

Imagine you have owned it for 8 years, if which you lived in it for 3 years, then rented it out for 5 years. The rules say you treat the last 9 months as though you lived in it, so you pay tax on the not-living-in-it bit - ie 4.25/8 x the gain.

So you have a taxable gain of £6.9k

You get an annual capital gains allowance of £6k per year in the current tax year (it is due to decrease for 2024/25). So you pay tax on £0.9k. If that £900 falls within the 40% tax band you pay tax at 28%,if it falls within the 20% tax band you pay tax at 18%.

You can also utilise any capital expenditure you spent on improvements to offset any gain. HMRC website tells you what's allowable.

Okay amazing so if I bought for 350 sold for 400 less 2k that's 48k

owned for 8 years rented for 2 so 1.25/8 x 48 is 7.5

7.5 minus 6 is 1.5 and 40% on that is 3k

does that sound right?

maybe ive been worrying over nothing

you are very wonderful people thanks so much for taking time to reply

www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/

Capital gains tax on property is 18% within your basic rate tax band and 28% above

Transfers between husband and wife are tax free. Not the case if you are unmarried.

Use the link above and HMRC will calculate your potential gain

Tax is payable within 60 days.

CGT is 18% basic rate and 28% higher rate. You get £6k tax free.

If you transfer to your partner and have a mortgage you would pay SDLT on the mortgaged amount. It’s probably not as bad as you think.

you can also claim the SDLT you paid on buying it as an expense and any purchase costs. Plus any capital improvements you’ve made.

Okay amazing thanks so much all, it will be a relief once the property is sold and I don't have to worry about SVR etc

Unfortunately you’d have to sell by end of March 2024 to get £6k CGT allowance. This sounds unlikely if there’s 6 months left on the tenancy. After that it’s down to £3k allowance, I think.

Oh gosh okay no worries thanks for letting me know