Tax Implications On Rental Property

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in AAT member discussion
Can any one please help on the following situation which is only an example.

If I brought a rental property is 1995 for the price of £50,000.
Sold the same property in 2005 for £150,000. Therefore a profit of £100,000.
With the profit if I was to use it all or part of it towards another rental property at a cost of £200,000 how would that affect my sitution with CGT?
How would this also affect my sitation if I was to buy a cheaper property of say £120,000?

Thanks for any replies!

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    Hi RHM.

    You could defer some gains until you sold the new property.

    Scott.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    you can only roll over gains on business assets

    your property sounds like an investment
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    the gain would be ...

    the proceeds less incidental costs of sale less cost of acquisition, incidental costs of acq, enhancement expenditure and allowable expenditure - this gives the unindexed gain.

    Indexation allowance is then calculated (up to 5/4/98 as this is the date it stopped for individuals). After indexation allowance is taken off then taper relief is also taken off (bonus year for assets bought before 1998).

    This then gives the gain which is taxed at 10,20 or 40% depending on the band it falls into.

    Losses can be set off against gains but I don't think you could put the profit against the cost of another property. I think this is only for business assets as is rollover relief.

    hope this helps!
    Helen


  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    Im with Scott on this one. Depending when you sold the property and when you bought the new would determin weather you would need to use Helens calculations. (and as an individual, not forgeting your P/A)

    If you did have to pay the CGT you could adjust your return and reclaim the amount you paid and as Scott said defer the gain until the sale of the new property.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    Going on from this the gain made in the first property will recduce the cost of the second property.... hence defering the tax.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    Would I be right in saying that no tax would be due untill the second property is sold?
    If this is the case from what date will the tax be due, ie from the date that the 1st property is sold or from the date that the 2nd property is sold?

    I hope this make sense!

    Thanks for your replies.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    I thought that "normal" rental properties were not classed as a "business" by HMRC only furnished holiday lets. If that is the case, then there would be no roll-over relief available, even if the profit were re-invested.

    The capital gain would then be sale price less purchase price and incidental expenses less any non-business taper relief available (ie held for more than 3 complete years).

    You are all beginning to worry me now that I have got it wrong :roll:
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax Implications On Rental Property

    you can never roll over gains on rental properties held as investments!!!!

    Only on the sale of business assets

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