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Your tax checklist for selling your B2L portfolio

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Craig Hughes

Craig Hughes – Personal Tax Specialist

Many buy-to-let property investors have had issues with the introduction of unfavourable tax policies in the last couple of years. With additional future changes on the way in April, investors may be contemplating selling up. But what aspects should be considered beforehand?

By way of a recap, investors who bought into the buy-to-let property market face a constraint of tax relief of interest payments, the deduction of wear and tear relief and the addition of further 3% stamp duty fees for purchases of additional properties. From 6 April 2020, landlords will also have to consider future conditions on both of principal private residence (PPR) relief and letting relief.

For B2L landlords who are considering of selling up, a catalogue of considerations follows:

Is your pre-sale tax reserve for the rental income sufficient?

Even if one investor decides to sell, given the various changes, especially the conditions of mortgage interest relief, it is critical that landlords appropriate satisfactory funds to cover the tax owing from the rental profits made prior to a sale.

Can you sell before 6 April 2020?

For those individuals who are renting out a property which they have previously `lived in, An investor should consider whether it would be a possibility to sell the property before the added restrictions of PPR and letting relief come into action.

Have you done your calculations?

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 Landlords need to consider the sum of tax they need to account for and pay after completion of sale. In the cases which have been impacted by the changes to PPR and letting relief as the restrictions become active this will directly cause the amount of tax owed to increase.  A responsible CGT tax reserve should be put aside to cover the tax due. An individual will not want to miss any tax deadlines as the penalty charges can quickly add up.  

Have you considered joint ownership prior to selling?

If you are married, or in a civil partnership, a method to think about is putting your properties into a joint ownership agreement.  An exchange of a gift of property to your partner will have no tax attached to it.  Another benefit is that joint ownership you will effectively double up on your annual exemption, currently £12,000, which can be deducted against your sale proceeds. It is critical to remember that the exchange of a gift must me genuine so that your spouse will be permitted to half of the sales proceeds.  

What about gifting a property to the next generation?  

Rather than put a property on the market, some B2L landlords may contemplate gifting it to their child or grandchild instead. It will allow them to gain access to the property ladder and provides a future income stream. CGT would arise on the gift, but the recipient can escape paying SDLT if there is no outstanding mortgage.

Could you place your portfolio in a trust?

A trust can still be a sensible vehicle for holding your rental properties under the right circumstances. You should be aware of the possible CGT and inheritance tax implications. This is a complex area of taxation and professional tax advice should be sought.

Where does the debt sit?

Make sure any mortgage you take out is against your rental property and not against your own home. As obvious as this sounds, we still come across landlords who are unable to claim this relief simply because they mortgaged the property on their own home.

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Craig Hughes - ATT CTA

Partner

Craig Hughes is a Partner in Menzies Heathrow office specialising in offshore tax advisory accounting services & tax planning services for private clients.