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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 16629
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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TAX QUESTION: I have a modest portfolio of residential

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TAX QUESTION: I have a modest portfolio of residential rental flats. One such flat was one I bought cheaply and totally renovated. It has now gone up in value and has a healthy loan to value ratio and a decent monthly rent.I need to now plan the raising of finance for a new project; the renovation of another flat which I am buying on an interest only BTL mortgage of 75% of the agreed purchase amount.From a CGT perspective when I come to eventually sell the the first flat I mentioned, would I be better off getting a further advance from the incumbent mortgage provider - which I can do at 3.2% - OR just go for a bank loan?IE. By borrowing more on the property, does this mean that my CGT liability would be lower due to the fact that on paper, on sale, I would owe the mortgage provider more and be making less gross profit? Best wishes Martin

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

The amount of loan secured on a property or used to help finance its purchase has absolutely no influence on the calculation of the capital gain when a property is sold. Why would it? The loan may have been used to buy the property but that is simply how the purchase was financed. The gain is calculated by taking the net of selling expenses sale proceeds and deducting from that the cost of buying the property (which may have been financed through a mortgage), the cost of capital improvements and the expenses of sale. If it was possible to avoid CGT by simply borrowing the equity, everybody would be doing it.

I hope this helps but let me know if you have any further questions.

Customer: replied 5 months ago.
Thanks Tony. Pretty clear!


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