Reinvesting to avoid CGT

[JamesX]

When you sell your BTL property csn you avoid paying capital gains tax by reinvesting all your profits in a property in Spain or Greece etc? 

[Richlist]

The short answer is no, ...there are very few ways of avoiding CGT. The few ways that do exist don't look particularly attractive....eg

* You can die......then you can avoid CGT......but then your estate might get hit by IHT.

* There are a few countries around the world that you can move to, permanantly, and avoid CGT......none of them look attractive locations.

The annual personal allowances are generous plus you can offset buying and selling costs and any capital expenditure during your period of ownership. After that its either 18% or 28% depending on your marginal tax rate.

Pay up, the country needs your tax revenues to pay for schools, NHS and defence etc.

The only good bit about CGT is that currently you don't need to pay it until  between 10 - 22 months after the sale completes. Because of this delay in payment of tax due, if the proceeds are invested wisely, it's my experience that a large proportion of the tax bill can be recovered from income.

 

[Melboy]

James.........No, you can't do what you are suggesting.

A phone call to HMRC/Solicitor acting for your sale will confirm this.

Don't forget also that your solicitor is required by law to submit your property sale to HMRC within 30 days of the sale where it is recorded by HMRC.  In the last 10 years HMRC have really tightened up on the recording of property sales and cross referencing these sales for tax collection.

[JamesX]

Thanks for your replies, guys. So, the provision whereby you could reinvest your profits (i.e. after expenses etc) in another property this avoiding CGT, is this no longer available?

[Richlist]

It never has been to my knowlege

[Carryon Regardless]

Some years back it was possible to invest sale profits into another venture and so in effect defer CGT.

It was within a year or two , but clearly I don't remember how long.

I haven't a clue if still possible, but the HMRC web pages should help.

As for doing the same if within the eu I wouldn't have a clue, anyway you wouldn't have long for that one.

 

[matthewogrady]

how long would you have to live in a property to avoid paying cgt. it is my only property

[Richlist]

You don't pay CGT on your own property that you live in. It's paid on the profit from any additional properties that you own.

[Carryon Regardless]

I think the question might be asking how long you might need to live in a former BTL to avoid any CGT.

If so, sorry I used to know the answer but things have changed and I've not kept up to date. What might be reasonable though is to consider values and any CGT at such time as the property changes from a 'Let' to your own home.

However CGT is supposed to be declared within 30 days, or later on there might be penalties.

[Melboy]

12 hours ago, Carryon Regardless said:

I think the question might be asking how long you might need to live in a former BTL to avoid any CGT.I

However CGT is supposed to be declared within 30 days, or later on there might be penalties.

 2 years use to be the minimum time after moving back into a BTL unless you had been a member of the armed forces serving overseas for a contract period with your family and some government departments were also exempt.

CGT  declaration time period is more than 30 days as I am aware.... and if it's not then I'm in trouble.   😅

[Carryon Regardless]

https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

Report 'and pay' it seems, if after April 20. Sorry Mel, but me is just da messinger.

That would suggest that re investing in another venture to 'defer' CGT no longer applies. It used to be that we may sell and reinvest the gain, within a period I don't remember but think 2 years, and transfer the CGT payable to the new venture. 

If however we have paid the tax man that gain we don't have it to reinvest.

 

[Richlist]

I've sold a few properties over the last few years and paid an enormous amount of CGT. 

If there were any way of avoiding it, believe me, I would be at the front of the queue.

[Melboy]

5 hours ago, Carryon Regardless said:

https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

Report 'and pay' it seems, if after April 20. Sorry Mel, but me is just da messinger.

That would suggest that re investing in another venture to 'defer' CGT no longer applies. It used to be that we may sell and reinvest the gain, within a period I don't remember but think 2 years, and transfer the CGT payable to the new venture. 

If however we have paid the tax man that gain we don't have it to reinvest.

 

My liability is before April 2020  ( July 2019 )and having sought info from HMRC the person told me to declare it on my next SE tax declaration for 20/21 so I have done that .

Can't keep up with it all these days I have to say.    😐

You can't avoid it at all because your selling solicitor advises HMRC of your property sale.

[Richlist]

Yes same here..... we completed a sale in September 2019 so the capital gains for that property is on our  SA tax returns just submitted and the £30K of tax due will be paid by 31st January 2021......ouch!

[Carryon Regardless]

WE know CGT is taxable on,  sale value - purchase price - purchase costs - development costs (pre rental) - proportions of other expenses on occasion -  sale costs.

So a fair bit of record keeping to demonstrate the deductions. We should keep records of our revenue expenses for 6 years + a bit. What records did you chaps have to produce to demonstrate your costs? How far back (as very often a property will be kept for longer than 6 years)?

[kanrent]

On 9/2/2019 at 1:15 PM, Richlist said:

The short answer is no, ...there are very few ways of avoiding CGT. The few ways that do exist don't look particularly attractive....eg

* You can die......then you can avoid CGT......but then your estate might get hit by IHT.

* There are a few countries around the world that you can move to, permanantly, and avoid CGT......none of them look attractive locations.

The annual personal allowances are generous plus you can offset buying and selling costs and any capital expenditure during your period of ownership. After that its either 18% or 28% depending on your marginal tax rate.

Pay up, the country needs your tax revenues to pay for schools, NHS and defence etc.

The only good bit about CGT is that currently you don't need to pay it until  between 10 - 22 months after the sale completes. Because of this delay in payment of tax due, if the proceeds are invested wisely, it's my experience that a large proportion of the tax bill can be recovered from income.

 

Avoiding Capital Gains Tax on Inherited Property

Another time when the capital gains tax comes into play is when an individual inherits property. Often, the individual who inherits the property does not want to deal with the burden of keeping it. The good news is that if the individual chooses to sell the home immediately, they may not find themselves subject to the capital gains tax.

The deceased’s estate does not have to pay CGT on any property or assets not sold before they passed away. The government considers these to be unrealised gains but does not require inheritors to pay a CGT. However, if the value of the property increases after the person dies, then an individual will need to pay CGT when sold during probate.

The capital gains tax is not on the final sale price minus the initial buying price. Instead, the government estimates the CGT based upon how much the value of the home increased after the person passed away. Those who inherit property do so at the probate value. The government only holds them liable to pay CGT on the increase in probate value.

So, if an inheritor knows that they do not want to keep the inherited property, they should sell it during probate. The increase in value that occurs during probate is minimal if any at all. Selling the property during probate is an excellent way to avoid capital gains tax on inherited property, considering that the government waives previous CGT as unrealised gains.

[kanrent]

Just now, kanrent said:

Avoiding Capital Gains Tax on Inherited Property

Another time when the capital gains tax comes into play is when an individual inherits property. Often, the individual who inherits the property does not want to deal with the burden of keeping it. The good news is that if the individual chooses to sell the home immediately, they may not find themselves subject to the capital gains tax.

The deceased’s estate does not have to pay CGT on any property or assets not sold before they passed away. The government considers these to be unrealised gains but does not require inheritors to pay a CGT. However, if the value of the property increases after the person dies, then an individual will need to pay CGT when sold during probate.

The capital gains tax is not on the final sale price minus the initial buying price. Instead, the government estimates the CGT based upon how much the value of the home increased after the person passed away. Those who inherit property do so at the probate value. The government only holds them liable to pay CGT on the increase in probate value.

So, if an inheritor knows that they do not want to keep the inherited property, they should sell it during probate. The increase in value that occurs during probate is minimal if any at all. Selling the property during probate is an excellent way to avoid capital gains tax on inherited property, considering that the government waives previous CGT as unrealised gains.

Does the above include BTL

[Richlist]

21 hours ago, Carryon Regardless said:

WE know CGT is taxable on,  sale value - purchase price - purchase costs - development costs (pre rental) - proportions of other expenses on occasion -  sale costs.

So a fair bit of record keeping to demonstrate the deductions. We should keep records of our revenue expenses for 6 years + a bit. What records did you chaps have to produce to demonstrate your costs? How far back (as very often a property will be kept for longer than 6 years)?

Well you don't have to produce any records unless HMRC requires them. You just need records to complete the self assessment pages.

I  kept the following details /receipts:

 * purchase costs & sale costs, ....legal fees, SDLT, agents fees etc. I add a little bit on for mileage, telephone & postage to cover my additional costs. Normally completion statements/ letters from your solicitor will demonstrate costs of necessary.

* any capital expenditure during ownership.....I always keep receipts and written records

* sale & purchase prices......again that will be from your solicitors letters.

* dates of sale & purchase (although this year they didn't ask for dates, they have in previous years).

* annual allowance 2020/21 is £12300 per person.

*  don't forget to split everything 50:50 if property is jointly owned.

I am then able to determine the amount of cgt due to HMRC AND.......

That all results in my then suffering 24 hours of depression until I get around to convincing myself that it could have been so, so much worse than it is.....then I start to feel really happy in the knowledge im paying far less than I might have done.😂