BTLs - sell up?

[Seany88]

I've got 3 BTLs and I'm thinking of selling 2 over the next few years as I don't think they're worth the hassle anymore. I probably should have sold while there was still a decent CGT allowance but oh well. I'm going to have to pay quite a bit of CGT, so thought best to sell one in each tax year, are there any other ways to minimise the potential tax bill? They've each gone up about £100k, I lived in 1 for 2 years initially, and owned for 11. Currently a lower rate taxpayer, actually a student again so not earning much and might make a paper loss due to student fees so I guess its a good time to sell? I guess the CGT allowances won't come back anytime soon, is this the right decision?

[Wololo]

If I'm not wrong, the tax free allowance is only £3k and at 18% will save you £540 in tax.

If it were me I'd just be looking for the best deal available and wouldn't attempt to delay the sale of one of them for the sake of such a small tax advantage, especially as we're at the start of the tax year. If it gets to mid march next year and you still have one then that might be worth dragging out!

[BAMoFo]

I agree with Wololo.l, but I'm intrigued about your comment about student fees might mean that you make a paper loss. I can see how that might be the case from an income perspective. However, it won't have a bearing on how much CGT you will pay unless you are taking about selling both in the same financial year and it potentially putting you in the higher tax bracket.

[Phil.]

As I understand the rules, when you sell one of your BTL properties with a £100k gain, this gain will push you into the higher tax bracket for that tax year so unfortunately you’re going to get stung with the higher rate CGT. I could be wrong but worth checking out.

[Saleen836]

Phil. said:

As I understand the rules, when you sell one of your BTL properties with a £100k gain, this gain will push you into the higher tax bracket for that tax year so unfortunately you’re going to get stung with the higher rate CGT. I could be wrong but worth checking out.

Handy calculator on the HMRC website...

https://www.tax.service.gov.uk/calculate-your-capi...

[Phil.]

Saleen836 said:

Phil. said:

As I understand the rules, when you sell one of your BTL properties with a £100k gain, this gain will push you into the higher tax bracket for that tax year so unfortunately you’re going to get stung with the higher rate CGT. I could be wrong but worth checking out.

Handy calculator on the HMRC website...

https://www.tax.service.gov.uk/calculate-your-capi...

Very useful and proves my point that a £100k gain would push you into the higher rate tax band for CGT.

[Seany88]

Phil. said:

Saleen836 said:

Phil. said:

As I understand the rules, when you sell one of your BTL properties with a £100k gain, this gain will push you into the higher tax bracket for that tax year so unfortunately you’re going to get stung with the higher rate CGT. I could be wrong but worth checking out.

Handy calculator on the HMRC website...

https://www.tax.service.gov.uk/calculate-your-capi...

Very useful and proves my point that a £100k gain would push you into the higher rate tax band for CGT.

Yes that's correct, but (and probably me misunderstanding) does that make me a higher rate taxpayer? So savings interest etc would be higher rate? That's where my thoughts come from about making a paper loss of income, and opening a SIPP and making pension contributions to keep me as a lower rate taxpayer?

I asked my accountant and he said this which I don't understand fully:
"Tax benefit on SIPP or any other pension contributions only happens if you are a higher rate tax payer. if you want to reduce your CGT liabilities, the net saving is 6% (24%-18%) on your contributions."

[Phil.]

Seany88 said:

Yes that's correct, but (and probably me misunderstanding) does that make me a higher rate taxpayer? So savings interest etc would be higher rate? That's where my thoughts come from about making a paper loss of income, and opening a SIPP and making pension contributions to keep me as a lower rate taxpayer?

I asked my accountant and he said this which I don't understand fully:
"Tax benefit on SIPP or any other pension contributions only happens if you are a higher rate tax payer. if you want to reduce your CGT liabilities, the net saving is 6% (24%-18%) on your contributions."

Yes, you become a higher rate tax payer for the year you take a large capital gain.

Unsure how you make a loss on income? Can you have negative income? Even zero income and a 100k capital gain will still put you in the higher tax bracket.

I’d ask your accountant to provide a plan to minimise tax if/when you take the capital gain and work out what your tax liability will be, so no suprises.

[spaximus]

You need to look at everything you can get an allowance offset against the value rise. You can use the legal costs of buying and selling and any costs of improvements made that have added value. New kitchen new bathroom etc.

Worth getting advice

[BAMoFo]

I'm pretty sure that a new kitchen or bathroom is classed as replacing like for like, rather than an improvement, so can't be used to offset CGT. The expenditure can be used to offset income tax during the year that the expenditure was made.