Capital Gains Tax and the one year Rule

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  • wotsitallabout
    replied
    Still trying to get my head around all this and still reading. Thanks everyone, I am grateful. Alan

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  • jpkeates
    replied
    No.
    Section 22 of the act requires that s21 is satisfied.
    Selling a property doesn't satisfy s21.

    While I can appreciate that you are keen not to pay a huge tax bill, you must appreciate that if there was any way of deferring or rolling over a capital gain on a rental property we'd probably know about it and lots of us doing it?

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  • wotsitallabout
    replied
    Thank you everyone, I am trying to get my head around section 22 and 23 of the TCGA 1992 where if I re-invest proceeds of the sale, CGT is deferred. There seems to be (if I have it correct) that the more I pay for a new property, the less CGT I pay. Have I got this right?
    Regards

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  • jpkeates
    replied
    Those are sections of Taxation of Chargeable Gains Act 1992 and cover rollover relief (and other related mechanisms).

    Rollover relief is not available for residential property as it applies to properties that have been used for trade.
    So a commercial property or a holiday let would be eligible, but residential property is not a qualifying asset.

    Deferral relief is applicable to higher risk investments (which doesn't apply to property either).

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  • leaseholder64
    replied
    The relevant section of the Act is https://www.legislation.gov.uk/ukpga...assets/enacted

    It only applies to trades and only when the asset is being replaced, not on final disposal. Being a residential landlord is not considered a trade.

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  • wotsitallabout
    replied
    Thank you all,

    I have been reading and reading etc. So complex. Apparently someone said that there is no "rollover" system but I have been checking "deferral relief" which seems to be abut Section 152 to 160, (Do not ask me which act !).
    So I am still reading and grateful to you all.

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  • leaseholder64
    replied
    It is possible that leveraged investments weren't treated this way under indexation, but I think it is the only fair way of treating them, as the aim is, basically, to make a gain from inflation.

    Remember, until recently, no tax was being made from most of the rent, as it was going in things like service charges and mortgage interest.

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  • leaseholder64
    replied
    What I meant is that typically the investor only pays say, 30% of the cost up front. The remaining 70% is not subject to inflation, but paid as a sale cost. If the property value goes up by 5 times, and using a total purchase price of 1 unit, the indexed cost is 1.5, the nett proceeds of sale are 4.3, That leaves 2.8 that should still be subject to tax.

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  • JK0
    replied
    Originally posted by leaseholder64 View Post

    Given the leveraged model that a lot of BtL investors use, indexing would still result in a significant tax hit.
    Not sure where you get that from, but at least it would be fair. For a government to encourage inflation, and then tax a gain caused by that inflation, is taking the p*ss in my book.

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  • leaseholder64
    replied
    Originally posted by JK0 View Post
    In view of inflation indexing being removed from CGT, I think we are getting near a point where it is going to start affecting the property market, (and reduce stamp duty income.) I know I certainly won't be selling any of my properties that I've had over ten years. And for London one like the o/p's with tenfold increases, I'd be mad to!
    Given the leveraged model that a lot of BtL investors use, indexing would still result in a significant tax hit.

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  • leaseholder64
    replied
    Originally posted by jpkeates View Post
    But presumably not an unexpected one.
    I rather expect it is. A lot of people seem to see residential property as an alternative form of pension investment, rather than a business, and many were probably never warned about CGT and, in particular, the problem with investments that cannot be sold piecemeal and are where crystallising the gain by selling and buying a different investment is difficult and expensive.

    (Individual residential properties are not eligible for formal pensions, so can't be sheltered from tax as such, and collective ones are limited to a small proportion of the total pot.)

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  • jpkeates
    replied
    Originally posted by wotsitallabout View Post
    Thank you all again, Gordon 999, this is my retirement money and although the gain is a lot, a £100,000 tax bil of my "pension" is a blow.
    But presumably not an unexpected one.

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  • JK0
    replied
    In view of inflation indexing being removed from CGT, I think we are getting near a point where it is going to start affecting the property market, (and reduce stamp duty income.) I know I certainly won't be selling any of my properties that I've had over ten years. And for London one like the o/p's with tenfold increases, I'd be mad to!

    Leave a comment:


  • leaseholder64
    replied
    Originally posted by alice123 View Post
    thats a large proifit - ok now i might be wrong but if you were to purchase another prooperty - or maybe two with that money and then sell them again within a year the same price - then would you be able to pocket that money as the new purchasing would not make a gain so would not be subject to CGT ?
    As you would be purchasing cash does this matter ?
    It is pretty obvious that the tax system won't be set up like that

    There is a provision, that applies to holiday lets, but not normal residential rentals, that allows you to defer the tax if you use the money to buy a replacement property, but you would still have to pay all the tax on retirement. In fact not deferring the tax hit can be better, as you can use use the annual allowance in each year that you sell.

    If you could defer the tax, you would be hit by the full tax on the second sale, not zero tax.

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  • leaseholder64
    replied
    This is also running on https://www.taxationweb.co.uk/forum/...ck-t55685.html

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