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Peter
Peter, Chartered Tax Advisor
Category: Tax
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Experience:  Director at PDS Tax Limited
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My husband and I (64 and 63) have just sold our buy-to-let

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Hello, my husband and I (64 and 63) have just sold our buy-to-let property and have come away with £220k which will essentially be our pension pot. My husband works full time and I am part time and we are intending to carry on working until we can claim state pensions at 66. I need to contact some pension providers as I have no idea whether we are able to deposit the whole £220k into a policy (or possibly two, one for each of us) in any case. Our main concern of course is capital gains tax. I understand we can offset certain costs etc and that we both have an allowance when working out capital gains, but if we use any or all of the money for pension purposes, are we still liable for capital gains tax?
JA: What are the assets or property for this capital gain?
Customer: I have only looked at it very roughly and would need to work it out again properly. From memory, I worked out roughly that we might be liable to have to pay around £25-30k. That was why we were wondering if we invested in pension plan that we could reduce it further.
JA: Anything else you want the Accountant to know before I connect you?
Customer: I can't think of anything.. at the same time we are pursuing advice from an independent financial adviser regarding pensions.

Hi, my name is ***** ***** I am a Chartered Tax Advisor. Before commenting on the tax I have a few queries:

  • When was the property sold?
  • What was the acquisition price and date of the property?
  • What costs of sale did you incur (and how much?)
  • Did you make any large improvements to the property such as extensions?
  • Did you ever live in the property (and if so what dates)?
  • Was the property ever let to tenants (and if so what dates)?
  • Please can you give me an estimate of the annual amount of your total incomes each per year?

Once I know the answers to these I will be in a better position to give you some answers. Many thanks

Kind regards, Peter

Customer: replied 9 days ago.
We sold the property on 6th June of this year.
We purchased it for £122,000 in 2002.
I think costs came out at roughly £5,000 from memory.
No large improvements - approx costs - windows: £6k, boiler £3k, £5k on bathroom and plastering.
We never lived in the property, it was rented the whole time with the exception of the last 12 months.
Annual income: I will have to track back through the tax returns to check for this which I will do shortly.

Thanks. Sorry two final questions:

  • What was the date of exchange?
  • I assume this is a residential property?

Kind regards, Peter

Customer: replied 9 days ago.
Hi Peter,
Further to above, please see these answers clarified below -
We sold the property ( a one-bedroom flat) and after costs, received £228,123. The date of completion was 6th June 2019.
We bought the flat for £122,500 and the date of completion for the purchase was 26th July 2002.
As above - no large improvements except those stated. However all costs and expenses have already been claimed for in annual tax returns.
The property was a residential property and was rented out to tenants on annual tenancies from 2002 until June 2018. We had never lived at the property ourselves.
An approximate figure for average annual taxable income after expenses for the 17 years from 2002-2019 would be £1250. All annual income from the flat and expenditure had been included in my husband's self assessment tax returns for each year.
Kind regards,
Annette Heath

Thank you Annette

I have attached an indicatinve capital gains tax computation which shows a CGT liability of £10,416 each.

For capital gains tax purposes when this tax becomes payable is determined by the date of exchange: if you exchanged before 6 April 2019 the tax will be reported on your 2018/19 tax return and payable by 31 January 2020, if you exchanged on or after 6 April 2019 the tax will be reported on your 2019/20 tax return and payable by 31 January 2021.

In order to give you a worse case scenario I have assumed that the taxable gain is subject to higher rate tax only. Depending on the level of your other sources of income in the tax year of exchange, some of the gain may fall within your basic rate band. Residential property gains subject to basic rate tax are charged at 18% rather than 28%.

You may be able to put some of the property proceeds after tax into your pension but there are various limits for doing so which can be quite complex. Usually people put money into pensions to avoid income tax and national insurance on earnings. I would question whether there are any long term tax advantages of putting the post-CGT proceeds into a pension as you may not be able to make use of the ingoing tax reliefs, and there is a good chance you will suffer some tax when the pension is taken. You cannot get capital gains tax relief for putting the post-CGT proceeds into a pension.

I recommend that you find a financial advisor (if you don't already have one) to help advise you to invest the post-CGT proceeds in something that is suitable for you long term needs in retirement.

If you have any follow up questions, I am happy to help. Otherwise please consider a 5 star rating for my answer.

Kind regards, Peter

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Customer: replied 8 days ago.
Hi peter, that's all really helpful, thank you. Annette