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bigduckontax
bigduckontax, Accountant
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I bought a second property in 2001 and have rented it

Resolved Question:

Hi,
I bought a second property in 2001 and have rented it out for the majority of the time since. Now I am selling it I am wondering about the Capital Gains I will need to pay.
I was considering buying another property with some of the proceeds. It was my understanding that if the proceeds go directly to the new second home will that offset my capital gains ?
If not could you give me guidelines / information on what Capital Gains Tax I would be liable for ?
Regards,
John
Submitted: 10 months ago.
Category: Tax
Expert:  bigduckontax replied 10 months ago.
Hello, John, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Firstly did you ever occupy this property and live in it? Once I know thi I can better address you problem.
Customer: replied 10 months ago.
Hello Keith,
I occupied the property initially and for a couple of small length periods during the term.
Customer: replied 10 months ago.
Initially the property required a fair amount of updating and the property has not been occupied since August 2015 since which I have paid the council tax and bills.
Is it possible to transfer the net gain to another second property which was my principle aim ?
Expert:  bigduckontax replied 10 months ago.
Right John there are two routes open to you. You could reinvest in another property to rent in which case rollover relief would apply effectively transferring the net gain to the new house. However, that just postpones Capital Gains Tax (CGT) until you ultimately sell. Rollover relief is explained here: https://www.gov.uk/business-asset-rollover-relief If you sell up then you would be liable to CGT on the gain. The gain is the difference between the net selling price ie after deduction of selling costs including advertising and the acquisition price. The latter is the purchase price plus purchase costs including stamp duty plus and improvements eg installation of double glazing, central heating extensions etc, but not routine maintenance which is allowable against rental income. The difference is the gain which, after deduction of your non cumulative Annual exempt Amount (AEA) of 11.1K nd Lettings Relief (LR) up to 40K will be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. I do hope that you have found my reply of assistance.
Customer: replied 10 months ago.
I followed the link and it says - Business Asset Relief. Is this applicable to Buy-to-Let properties ?
Customer: replied 10 months ago.
This could be the answer I needed if it is applicable to properties and also
if the new Property plus costs is equal to the Net Gain but not the Total Sold property price is this sufficient to mean that Full relief of Capital Gains is made ?
Expert:  bigduckontax replied 10 months ago.
The test case in this matter is explained by rossmartin.co.uk, one where HMRC lost their long standing argument that buy to let was an investment activity not a trade: 'In Elizabeth Moyne Ramsey v HMRC [2013] UKUT 266 TC the Upper Tier Tax Tribunal allowed the taxpayer's appeal and decided that residential property letting is a business for the purposes of roll over relief under s162 TCGA 1992 (incorporation relief). HMRC has long argued that there is no business in ordinary letting as it is an investment activity.' Their full article which you may care to read can be found here: http://www.rossmartin.co.uk/sme-tax-news/1091-letting-qualifies-as-business If you reinvest everything in the new property then rollover relief still applies.
Customer: replied 10 months ago.
That sounds good. Do you mean reinvest the Net Gain is sufficient as I want to purchase a property of lower value ?
i.e. I wish to take the Gross - Net Gain out.
Expert:  bigduckontax replied 10 months ago.
Here is the Gov UK guidance if you reinvest only part or you realised moneys: 'If you use part of the amount you received for the disposal of the old assets and the part not used is less than the amount of the gain, the amount by which the proceeds exceeds the amount used will be treated as the gain upon which tax may be due and you will get relief for the amount by which the gain is reduced. You deduct that amount of the gain from the cost of the new assets.' Confused, you will be! It's a wet towel round the head and the backs of lots of used envelopes to get round that one! Here is an example from the Gov UK guidance which helps: 'Example 11You sell a shop for £75,000 and make a gain of £15,000. You buy a new shop for £70,000 and claim roll-over relief. £5,000 was not used to buy the new shop. So the cost of the new shop is reduced by £10,000 to £60,000 and you may have to pay tax on the remaining gain of £5,000.'
Customer: replied 10 months ago.
I am a bit confused. It seems to be written back to front. Was this written by Shakespeare. Is there an example ?
Expert:  bigduckontax replied 10 months ago.
Yes, example 11, you may have missed it; have another look at my last response.
Customer: replied 10 months ago.
If you could help me with my tiny example and then I will let you go thanks.
Old Property Sold for 10 ( including costs )
Old Property Bought for 4 ( including costs )
Net Gain 6Bought new Property for 6.
What is the Relief ?
Expert:  bigduckontax replied 10 months ago.
Gain is 6. Buy for 6 so 4 not used. New premises cost is reduced to 4 and you may be taxed on the remaining gain of 2. The effect of this is that the rolled over gain is reduced from 6 to 4 and you could be taxed on the balance of 2 less AEA and LR. Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 10 months ago.
You've been a great, Help. I will rate you excellent.
Expert:  bigduckontax replied 10 months ago.
Delighted to have been of assistance, it isn't simple is it? Took me a few moments to get my head around it!
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3364
Experience: FCCA FCMA CGMA ACIS
bigduckontax and other Tax Specialists are ready to help you
Customer: replied 10 months ago.
It's not easy at all but that has answered a lot of questions. Thanks Keith, John
Expert:  bigduckontax replied 10 months ago.
Thank you for your support John.

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