If you’re selling your home, the good news is that there’s no Capital Gains Tax to pay on any profit you make. Against that, however, none of the expenses you incur are tax deductible. At least it keeps the transaction relatively straightforward, in tax terms at least.
The same doesn’t apply when selling a house that was bought as an investment property. This can include a property that is your main residence but where part of it is rented to generate an income. Tax deductions may also be allowed if you rented out the property for a period before it became your main residence or have rented it out after living there. In these cases, Capital Gains Tax and tax deductions will only be applicable to the part of the property for the period when it was rented but not when used as your main residence.
Determining the Amount of Tax Payable
If you sell a house that has been used as an investment property, Capital Gains Tax will be calculated on the difference between the sales price and the cost price, with allowable expenses being deducted from the sale price and added to the cost. The cost base will be the price paid for the property plus any allowable capital expenses, which include:
- any legal fees paid to a solicitor, such as title search fees, chargeable appraisal costs and conveyancing costs for the transfer of ownership of the property
- fees paid to an estate agent
- stamp duty payable on the acquisition of the property.
Some of these costs will apply when buying and selling the property so both can be used to reduce the amount of Capital Gains Tax due. If, after taking into account the buying and selling values and the allowable tax deductible amounts, a loss results, this can be offset against other capital gains to reduce the overall tax due.
Other expenses during the course of ownership may apply for investment properties, though these are deducted against tax each year rather than on selling the property. They include:
- the costs of maintaining and repairing the property
- local council taxes and water rates
- interest on any mortgage or loan taken out in connection with the investment property
- building, contents and landlord insurance
- advertising and property management fees
- adviser and accountant fees.
Any renovation and refurbishment work may be classified as capital costs and may need to be apportioned over a number of years. And, as before, if only part of the property is for rental or this occurs for only part of a year, the costs need to be apportioned appropriately.
Getting the Best Tax Advice
Taxation and tax deductibles can be complicated subjects so you need professional advice to ensure you minimise your costs. A good estate agent can help in these matters.
At LocalAgentFinder, we have numerous local and national real estate agents on our comparison tool so you can select the most suitable one. Speak to several before making your choice so you can be sure you have the right one for your needs. They’ll ensure you sell your property quickly, for the best price and with minimal cost including tax payable.