CGT on Buy to Let Property Sale with Lease Extension

[clarrieblue]

I bought an apartment, with 45 years unexpired lease, for £69000 in 2014. In 2017 I extended the lease by 90 years, at an overall cost (premium and fees) of about £25000. I sold the property in September 2019 for £126000.

I hope to offset the cost of the lease extension (£25k) against the CGT due. I also hope to offset against CGT the estate agents and solicitors fees for the sale.

Given that I'm a basic rate taxpayer, and I understand my personal CG allowance for 2019/20 was £12000, I wonder how much should I budget for CGT on this sale in the next tax year?
Also interested in whether I'm likely to be able to complete my tax return for these circumstances online. Or whether I'm likely to need to contact my local tax office and enter into direct communication with them.

Any thoughts or experience on this much appreciated.

[jpkeates]

The cost of the lease extension is allowable against the gain, so your gain is £32,000.
Don't forget that any other costs associated with the purchase and sale - like SDLT, conveyancing fees, estate agent commission are also allowable,

The issue is usually whether the gain knocks you into the higher tax band, so the CGT is 28% not 18% - which depends on your other income.

[clarrieblue]

Thank you.

Re: '

The issue is usually whether the gain knocks you into the higher tax band, so the CGT is 28% not 18% - which depends on your other income.

'

So would the capital gain be taxed as though it were income in just the tax year the property was sold, then added to my other income?
Even though the capital gain has actually been made over a five year period?

[jpkeates]

Yes, you add the taxable gain to your income in the year of disposal.
The guide here is quite helpful - https://www.gov.uk/capital-gains-tax/rates

[clarrieblue]

Thanks again, that’s very useful.

Anyone any thoughts on whether I can process this through usual online self assessment tax return process? Or whether direct contact with Inland Revenue needed?

[jpkeates]

Anyone any thoughts on whether I can process this through usual online self assessment tax return process? Or whether direct contact with Inland Revenue needed?

If it's already happened, it goes on your next self assessment return.
The rules change in April, and, after that, it's a separate declaration and payment within 30 days of completion.

[clarrieblue]

Thanks, yes it's already happened, so it'll go on my next self assessment.
Given it's more complex than usual, I'm thinking of submitting that early next tax year, say by May. Allow plenty of time for queries, discussion, etc. Under current self assessment rules I still have until January 2021 to pay my tax bill.
I'm a bit concerned about whether the one off premium for extending the lease will be deductible from the overall profit on the sale. Of course, without spending that premium, the flat would have been a much lower sale price and difficult to sell at all.

[jpkeates]

You won't get any queries, trust me, HMRC are delighted when people pay tax.

Don't worry, the lease extension is deductable.
It's a capital expense, and it was made solely and exclusively to increase the value of a business asset.

[clarrieblue]

That's reassuring. Thanks again for your replies.

[stuco]

Apologies for jumping in but currently extending the lease on a BTL that we expect to have for at least the next 15 years. Can the lease extension costs be offset in a normal SA year or can they only be offset against CGT when property is sold? Thanks

[jpkeates]

It's a capital expense and is allowable against the gain.
It's not allowable against income.

[stuco]

*It's a capital expense and is allowable against the gain.
It's not allowable against income.*

Thank you