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Selling a property - capital gains tax

edited October 2012 in Not Sports Related
Quick question on CGT.

I know you can deduct cost of improvements, estate agents fees and solicitors fees from the amount you are liable to pay tax on, but can you deduct the fee you are charged for coming out of a mortgage early?

Comments

  • Yes.

    The clue is in the Capital Gain. It's purely about how much more you sell than you paid, taking all costs into account.
  • Don't forget that if you own the property with somebody else you can use both your annual exemptions against the gain all other circumstances being equal.
  • But be careful about what you claim as improvements - routine repairs and maintenance, such as repainting before a sale most likely wont be deductible against CGT.
  • I would have said no - the mortgage is not part of buying or selling the property and it is your deciscion to pay off the loan early.

  • LenGlover said:

    Don't forget that if you own the property with somebody else you can use both your annual exemptions against the gain all other circumstances being equal.

    how much are the exemptions?

  • LenGlover said:

    Don't forget that if you own the property with somebody else you can use both your annual exemptions against the gain all other circumstances being equal.

    how much are the exemptions?

    £10,600 for an individual in tax year 2012/13
  • You can claim interest payments as an expense so I would have thought the fee as an expense can be claimed.
  • You can claim interest payments as an expense so I would have thought the fee as an expense can be claimed.

    What interest payments? You can't deduct mortgage payments (interest or otherwise) as an expense as far as I know.

    I very much doubt you can deduct the mortgage fees either. As Golfie says, it is not a cost of selling the property, nor is it a capital cost.
  • Cheers all, managed to get through to HMRC and as majority thought, you cannot use the mortgage redemption fees to offset.

    The improvements were proper work - new kitchen,bathrooms, patio doors etc.

  • Onelung.
    Firstly, is the property the only property you own? If so there should be no CGT as it will be covered by the principle private residence exemption. If not and it is a buy to let or investment property then CGT will be charged on the gain made after deduction of relevant expenses. Early redemption penalties are not counted as a capital expense and therefore cannot be deducted from the gain.

    If the property is being rented then the penalty charge will be allowable as a deduction against rental income received in the final period of letting prior to the sale.

    If you need any further advice feel free to PM.
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  • Thanks JWA - this is not the only property we have, the mother in law has been living in it for 4 years and paying us rent but we are not on buy to let mortgage...
  • If you move in with her for 6 months you could then claim it to be your normal place of residency & then when you sell it wouldn't be subject to CGT..............or so I beleive.
  • Have you ever lived there? If so there could be some exemptions available, as GA says above moving in for a period prior to sale would also give some exemption but would be unlikely to wholly exempt the gain. Len also makes a valid point re annual exemption which is worth £21,200 if the property is jointly owned.
  • MrOneLung said:

    Cheers all, managed to get through to HMRC and as majority thought, you cannot use the mortgage redemption fees to offset.

    The improvements were proper work - new kitchen,bathrooms, patio doors etc.

    Have to be careful about the definition of improvements though. This seems to vary even within HMRCs own documents, so when I sold a previously rented-out house a few years ago I interpreted them in accordance with the definition that worked best for me. Seeing as they had just whacked CGT up to 28% (for trusts) I didn't feel too bad about that.
  • Boom said:

    You can claim interest payments as an expense so I would have thought the fee as an expense can be claimed.

    What interest payments? You can't deduct mortgage payments (interest or otherwise) as an expense as far as I know.

    I very much doubt you can deduct the mortgage fees either. As Golfie says, it is not a cost of selling the property, nor is it a capital cost.
    As far as I am aware interest has always been allowable, obviously not mortgage payments just the interest.

    Allowable expenses include:

    Repairs- If you pay to maintain your property in its existing condition, you can claim for the expenditure incurred. However if you improve the specification of the property, say replace kitchen units with a more expensive design, then HMRC may try and argue that the expenditure is an improvement. The cost of improving your property can be claimed against any capital gains tax when you sell the property, but will not be allowed as a deduction for income tax. There are currently concessions relating to insulation and also for replacing outdated items such as single glazed windows with double glazing.
    Mortgage or loan interest- You can claim for all the interest charged on the element of the loan relating to the purchase of the property, including the incidental cost of securing the finance. You cannot however, claim for the capital element of the loan repayments.
    Furniture replacement- If you let a residential property fully furnished, the Revenue will allow you to make a deduction for the depreciation and replacement of furniture. There are two ways in which you can do this.
    a) An annual 10% wear and tear allowance- the allowance is 10% of gross rents receivable after deducting any rates, paid by the landlord, or
    b) The actual cost of replacing the furniture, but there is no allowance permitted for the initial cost furnishing the property
    You need to make up your mind which way to claim when you first let a property, as it will apply for the entire period of your ownership. It usually works out more tax efficient to claim the 10% wear and tear allowance, but you should seek advice as the benefits depend on your personal circumstances.


  • edited October 2012
    I think there might be some confusion between expenses allowable for income tax and capital gains tax. Hartley Pete has identified expenses allowable for income tax whilst correctly stating that property improvements (as distinct to maintenance) can be deducted for capital gains tax.

    The original question related to capital gains tax ( CGT) and in simple terms deductible expenses include puchase and sales costs and property improvements.

    A good "rule of thumb" to help in deciding what is income and what is capital is whether it recurs or not. If it is a "one off" then it is capital if it recurs then it is income.

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