You are here: Home - Mortgages - Buy To Let - Understanding -

Tax checklist for selling your buy-to-let portfolio

Written by: Craig Hughes
Many buy-to-let property investors have suffered from the introduction of unfavourable tax policies in recent years. With further changes on the way next April they could be considering selling up. But what should be considered before doing so?

By way of a recap, those involved in the buy-to-let property market face a restriction of tax relief of interest payments, the removal of wear and tear relief and the introduction of additional 3% stamp duty charges for purchases of further properties. From 6 April 2020, landlords will also have to accept further restrictions on principal private residence (PPR) relief and letting relief.

For B2L landlords who are thinking of selling up, here’s a a checklist of considerations:

  • Is your pre-sale tax reserve for the rental income sufficient?  Even if you choose to sell, given the wide-ranging changes, especially the restriction of mortgage interest relief, it is important you set aside sufficient funds to cover the tax due from the rental profits made prior to a sale.
  • Can you sell before 6 April 2020?  Those who are renting out a property which they have lived in previously should consider if it’s possible to sell before the added restrictions on PPR and lettings relief apply.
  • Have you done your sums? You need to sit down and work out how much tax you need to report and pay following completion of sale. This is especially the case for those impacted by the restrictions to PPR and lettings relief as these restrictions will increase the tax due.  A sensible capital gains tax (CGT) reserve should be set aside to cover the tax due. You do not want to incur any interest and penalties for missing a tax payment deadline, these quickly add up.
  • Have you considered joint ownership prior to selling? If you are married, or in a civil partnership, consider putting your properties into joint ownership. A gift of property to your other half will be tax free. Through joint ownership you will effectively double up on your annual exemption, currently £12,000, which can be used against your sale proceeds.  It is important to remember that the gift must be genuine such that your spouse will be entitled to half of the sale proceeds.
  • What about gifting a property to the next generation? Rather than put a property on the market, some B2L landlords may consider gifting it to their child or grandchild instead. It gets them on the property ladder and provides a future income stream. CGT would arise on the gift, but the recipient can escape paying stamp duty land tax (SDLT) if there is no outstanding mortgage.
  • Could you place your portfolio in a trust?  Under the right circumstances a trust can still be a sensible vehicle for holding your rental properties, particularly for succession planning. But be aware of 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? Ensure that any mortgage you take out is against your rental property rather than your own home. This might seem an obvious point, but we still come across landlords who are unable to claim this relief simply because they have mortgaged the property on their own home.

Craig Hughes is private client tax partner at accountancy firm, Menzies LLP

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Big flu jab price hikes this winter: Where’s cheapest if you can’t get a free vaccine?

Pharmacies, supermarkets and health retailers are starting to offer flu jabs ahead of the winter season, but t...

Is now the time to fix your energy deal?

Fixed energy tariffs all but disappeared during the energy crisis. But now they are back with an increasing nu...

Everything you need to know about the pension triple lock

Retirees are braced to receive another bumper state pension pay rise next year due to the triple lock mechanis...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

The best student bank accounts in 2023: Cash offers, tastecards and 0% overdrafts

A number of banks are luring in new student customers with cold hard cash this year – while others are compe...

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Money Tips of the Week