Capital Gains Tax Maze questions - clarification

[TonyHSFC]

Hi All,

I am looking for some advice from the CGT experts at here.

Firstly I will explain my situaion.  I have a leasehold flat that I have let for about 4 years to a good tenant.  I am now getting major issues with the Residential Management Company and their managing agent so much so that I am mulling over selling the property and buying a small 2 bed house.  My plan is to attempt to take the tenant 'with me' into the new property if they are up for doing this (I have not approached them yet its just an idea, would like to keep him as he's been a model tenant).

I have had a quick look on the Gov website and read as much as I can and believe that I may have a small CGT liability of around £5000 which I need to take into account in all my calculations, if the property sells for more than I used in that calcution it just means more tax but more money if that makes sense.

My questions are:

1. Can someone confirm that there are no reliefs when you sell one rental property to buy another (I saw a post about this elsewhere in PT and that was the indication but there was only 1 reply)
2. Can we deduct any amounts spent on the property in terms of improving it, I thought this was possible in the past.  I have'nt spent much thankfully but would take this off the calculation if its allowable
3. Has anyone moved a good tenant from one property to another in the way I am thinking about?

I have looked into the possiblity of moving back into the flat but this would mean little difference from what I have read (for example declaring it as your main residence).  It would be a pointless exercise.

With regards to the problems I have there, it would take too long to explain I have posted elsewhere in PT but I am at the point of mulling over selling the flat because I see nothing but long term problems.  I have considered contacting all the other leasholders but I am now beginning to way up the hassle of this and I have for the time being decided to put things on hold, especially as I am sure that if I decided to sell this would come up in any legal paperwork and I have to declare the problems.  Not only would this 'alert' potential buyers to the issues there but would almost certainly put buyers off or mean low offers.

It's very annoying because I wanted to try and get the problems sorted out but once you start this sort of thing there is no going back.  They have already instructed a solicitor but I have now put engaging with them on hold as I am thinking over just jumping ship so th speak.  If I kept the property I would also have to spend money at some point on it regarding the possible EPC C upgrades.  The boiler is also anicent so by the time I have paid out for all this I am probably looking at £10-15 k anyway.  The flat is in a nice area and should be very sellable so I might be able to balance it alll out with a bit of luck on the purchase.

Any help and advice would be much apprecaited.

Thanks,

Tony

Edited January 17, 2022 by TonyHSFC
mistake

[Richlist]

1. There are no reliefs when selling rental properties. Exactly the opposite in fact. If you sell to another landlord they will pay a 3% SDLT surcharge. When you buy another property you will also have to pay an extra 3% SDLT surcharge.

2. You can deduct capital expenditure to reduce your CGT bill. It's a complicated subject.....if you post the items you are considering claiming for I will try to give you an indication wether I think they are valid. 

3. Moving your tenant will present problems. Presumably you will be looking to complete the purchase of a new property on the same day as you complete the sale of your flat ? Moving the tenant on that day will mean you have no opportunity to prepare the property or documentation required such as the inventory. Your sale will require you to provide vacant possession so your tenant will need to vacate on or before your sale completion. I can't see how you can make that work unless you buy your new property before you sell your flat. 

[Carryon Regardless]

More simple in calculations are your CGT personal allowance. Approx £12.5k p.a. If you're married you can manipulate to double that.

Most costs pre rental are allowable.

Same applies to post rental costs. So if considering up grades that may be better post rental. In you case this seems more complicated.

Some improvements during rental can be a CGT allowance.

Re investment allowance was removed years ago. A shame really as I would

[TonyHSFC]

Hi RIchlist,

Many thanks for your replies which are already making me think! Exactly why I posted to get some great advice.

Regarding the 'improvements' these were just minor things like I put in a new remote wireless thermostat, a few hundred but nonetheless are 'improvement'.  I am thinking of updating the electrical fuse board as I have the 5 year electrical test due soon but might change my mind about this if I decide to sell.

I can see what you mean about the issues here with the moving of the tenant and yes the idea was to simply move them in as though I was moving myself.  I suppose theoretically if they were willing maybe they could stay elsewhere perhaps for a weekend, I could get an inventory ready that would include the main things and would have a weekend to prepare it and all other documentation.  I agree though it would be complicated and I would most probably need written agreements in some way to protect myself and the tenant. I could get a solicitor to deal with that at the same time I guess as the legal sell and buy.  It's just an idea at the moment and I wanted to get advice and what you have said makes you think a bit more.  It would be a shame to lose a good tenant though so I would definately see if it was feasible and if they were interested.

The only other option is to serve notice and move in myself and sell and move then let out the new property.  I am moving myself and it was my intention to move in, get it ready then rent that house out but the problems with the flat have recently surfaced and its so stressful I am looking into a way out....literally.  Not sure what to do to be honest I know that I cannot just leave things as they are regarding the flat as what I have seen are quite serious issues.

Thanks for your help and advice I will need to tread carefully I think.

Regards,

Tony

[TonyHSFC]

8 minutes ago, Carryon Regardless said:

More simple in calculations are your CGT personal allowance. Approx £12.5k p.a. If you're married you can manipulate to double that.

Most costs pre rental are allowable.

Same applies to post rental costs. So if considering up grades that may be better post rental. In you case this seems more complicated.

Some improvements during rental can be a CGT allowance.

Re investment allowance was removed years ago. A shame really as I would

Thanks Carryon, pretty much what I thought from what I have read so far.

What I have to consider is possibly losing a great tenant, if I cannot move them into the next place up against burying my head in the sand (as the other leaseholders have regarding the deteriation of the site as well as my concern over a major possible claim in the event of an accident). 

I am of the mind at the moment to get out of the flat ownership and get a small house without all the problems of leasehold and awful Residential Management Company directors.  Anything else would be taking a chance and I know that some serious money would have to be spent inside my flat re the EPC C situation.  I suppose maybe I am accepting that it might be beter to do it now rather than later.

Yes I originally had no plans to re-sell this and would have tried to do what was necessary to get it to C if that comes in, but things have changed since I brought it.

I might have to call my solicitor to get some advice.  It's a tricky situation going to the tenant about this right now and to be honest the timing is not right for me but hopefully will be better in a few months time after I have moved myself.

Thanks for your help.

Regards,

Tony

[Richlist]

Improvements are generally allowed against CGT. Your remote wireless thermostat could be offset against CGT but a replacement consumer unit would be considered a like for like replacement so that's a revenue expense which you should offset against income tax.

 

 

 

 

 

[TonyHSFC]

On 1/17/2022 at 7:46 PM, Richlist said:

Improvements are generally allowed against CGT. Your remote wireless thermostat could be offset against CGT but a replacement consumer unit would be considered a like for like replacement so that's a revenue expense which you should offset against income tax.

Thanks Richlist and sorry for long delay in replying not been well.

I have come to the conclusion that just doing some rough calculaitons its going to cost around 10k in taxes plus around 2.5 k solicitors so to change properties will cost at least 12.5k and then anything else maybe on top.  Around where the flat is it might be possible to get a 2 bed house in a slightly perceived lesser area but a lot of work.  Still not sure what to do in the long term other than bury my head in the sand which is what I think all the other owners are doing.

Seems very wrong to me that you can't roll over a CGT liability if you are re-investing all of that money into another rental property, especailly as it could be argued that you are doing it for the reasons of improving your properties and thus the tenants living conditions.  Typical government never think things through.

Anyway thanks all for your help.

Regards,

Tony

 

 

 

 

 

[Melboy]

Tony said:

"Seems very wrong to me that you can't roll over a CGT liability if you are re-investing all of that money into another rental property, especially as it could be argued that you are doing it for the reasons of improving your properties and thus the tenants living conditions".  

 

I was trying to remember when the HMRC stopped this roll-over of CGT?

I know I did this about 25 years ago or more, whereby I sold a property and put the existing tenants into a much better property but I have to say I did it because it favoured me to do this at the time.  I know, I'm all heart.  😀

 No CGT to pay back in those days then.

[Richlist]

Well, in the interests of ensuring a balanced discussion, let me side with the Government on this.

The country has been through an awful couple of years of pandemic that's cost billions of pounds. Energy prices are rising and the poorer in society will need help with the bills, then we have the NHS, the new social care expenses and a small problem in the Ukraine which will no doubt involve spending even more money.

Therefore I think it's only right that those well off enough to incur a CGT bill should pay it sooner rather than later. Allowing people to carry over into the next property would only delay tax income to the Gov'........and they need all the money they can get.

[Melboy]

Interesting comment RL especially when you consider that the Government announced today that they are sending £88 Million of taxpayers money to the Ukraine to fight ...........corruption.

The big question is of course is why.    Is it the magic money tree of Rishi Sunak and BJ bursting forth again.

I would suggest that the money would be better spent here to help the very people and causes you mention.

[Richlist]

Whilst £88 million is an enormous sum to us as individuals it's a miniscule amount in terms of Government expenditure. To put it into perspective Covid-related emergency funding is £22 billion......& the health & social care budget is another £159 billion. I'm as keen to pay less tax as everyone else but believe if you can afford it you should pay it. I've paid very large CGT bills for the last few years.

[Carryon Regardless]

The Tories were traditionally watching the pennies, for us. Until covid.

Isn't our covid bill in the region of £400 billion now?

Some of our covid spending is intelligent and justified, but so much is blatant corruption, and by our bleeders.

Furlough was far too generous, and easily abused. How much of our inflation can be attributed to the quantitative easing, as attempted by Germany in the 30's, is something I couldn't say, but the effect to my mind will be significant.

As for Ukraine, I don't see it is anything to do with us, aside from our being a member of NATO and therefor complicit in the continual encroachment of Russia's borders. What we have been doing for a decade or two is creating an enemy of Russia, as a puppet for the US.

'If' Russia invade the result is bye bye Ukraine, or part at least. The West's interference with any military assistance will just cost more lives. It wont change the outcome.

The total lack of any respect by the Tories toward the electorate is blatantly obvious right now, with the BJ debacle. We are mere cash cows to line the pockets of the corrupt MP's, mainly Tory but not only. And I still wouldn't vote Labour.