Selling previously let property
Summer 2010
When you sell an investment property you will have to pay capital gains tax (CGT) currently at 18% on any capital gain (profit) you make. If you make a capital loss, then this can only be set against any gains made in the same tax year or against gains of later years.
The professional costs incurred in purchasing and selling the property can be deducted in calculating the gain or loss, including legal and estate agent’s fees. Any stamp duty paid when you bought the property is also deductible. You can’t deduct interest paid on a mortgage or loan used to finance the purchase of the property.
The cost of improvements to the property is deductible when calculating the gain or loss, but expenditure on repairs is instead allowed as an expense when calculating the property rental income. The expense is allowed in the year that the repairs are carried out.
If the property was let as a furnished holiday letting (FHL), and has met the conditions so that special tax treatment applies, then you can reduce the gain by using these business tax reliefs:
- Entrepreneurs’ relief can reduce the gain by 4/9ths, if you have not already claimed the maximum relief (currently £2 million) on other disposals. The current effect of this is to tax the gain at 10% rather than 18% (a rate now likely to increase).
- Roll-over relief where you use the sale proceeds to purchase another business asset or FHL property. The asset purchased may be for another completely separate business that you run.
Where property is jointly owned, the gain or loss is split between the owners in the proportions in which each held their stake in the property. Property in England and Wales may be held as joint tenants (normally in equal proportions), or as tenants in common (possibly in unequal proportions).
On your self-assessment tax return you need only report your portion of the gain or loss. Where you have the full annual exemption of £10,100 (for 2010/11) available, and your total capital gains less capital losses for the year are less than this amount, then you will have no CGT to pay. Individuals who are not UK-domiciled may not be entitled to the annual exemption.
