Q I would really appreciate your advice on capital gains tax (CGT).
I own a second property, which I have let out for the past 10 years. I have declared the rental income each year on my self-assessment tax return.
I am now in a position where I want to sell the second property and put the profit I have made towards moving out of the home I live in to another place. Do I need to pay CGT on my second property even though I am using the gain to help me move from one main residence to another? VS
A The short answer is yes, you do have to pay tax on any gain you make from selling your second property. What you plan to do with the money you have made has no effect whatsoever on whether CGT is payable.
You may have heard of “private residence relief”, which makes gains on a home that you have lived in for the whole time you have owned it CGT-free. Sadly, private residence relief is not available for a property that has been let for the whole time you have owned it, even if you are going to use the gain to buy a new home.
The good news is that you don’t pay tax on the sale proceeds from selling your second property. Rather, you take the sale price and then take off what you paid for the property 10 years ago plus buying and selling costs such as legal fees, estate agents’ fees and stamp duty. You can also knock off the cost of improvements to the property, such as a loft conversion or kitchen extension (but not regular maintenance costs because these can be offset against income tax on the rental income). Assuming that you have no other gains in the 2016-17 tax year, you can reduce the taxable gain by subtracting your CGT annual exempt amount of £11,100.
The bad news is that the gain after all the above deductions is taxable at 18% if you are a basic-rate taxpayer, or 28% if you pay tax at higher rates. Gains on residential property do not benefit from the new lower rates of CGT – 10% and 20% – which came into force on 6 April 2016.
https://www.theguardian.com/money/2016/sep/29/capital-gains-tax-cgt-if-i-sell-buy-to-let-fund-new-home
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