Capital Gains Tax – case study example for property investors

Chris Street

28th July 2017

By Louise Misiewicz

Are you aware of Capital Gains Tax legislation?

How can you protect your property portfolio?

I was talking to a buy-to-let landlord yesterday, and the brief but informative phone call helped him to understand the complex area of Capital Gains Tax (CGT) and how it impacts on property investors.

This week’s blog will be a short case study example, highlighting the property tax advice given to this client, and demonstrating how buy-to-let landlords can utilise professional advice to navigate around CGT issues.

What CGT issues can face your property portfolio business?

My client came to me with the following question – “Will I be taxed if I sell my home (which I rented out) and buy another property to live in?”

The client had bought the property in the mid-80s and lived there with his late wife until August 2015. After she died, he moved in with a friend on a short-term basis, as the memories in the marital home were too painful at the time.

The client now wants to sell the property and buy another home in a different area to live, and wants to know what tax he’ll be liable by doing this.

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My response to him was as follows: if the house he buys costs more than £125,000, he will have to pay Stamp Duty Tax (SDLT) on this. He will also be liable to the 3% SDLT surcharge if he in the end decided not to sell his home or had other property investment, which we wrote about in another article

My client was also concerned about potential CGT liabilities.

I advised him that there may also be a CGT bill, but if he sold the old property within 18 months of moving out, this would mitigate any Capital Gains Tax liability.

He would then also be entitled to Private Residence Relief on the whole of the gain – even though he wasn’t living in the property for the whole time he owned it.


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What other CGT advice did the property investor client get?

I also informed him that as he was selling the old marital home after 18 months of moving out, only part of the gains he made would be subject to CGT. The gain being the sale price minus the purchase price and expenses such as legal fees, SDLT, and estate agency fees – will be able to gain Private Residence Relief.

To work this out, I advised the client to add 18 to the number of months he actually lived in the property, and then divide this figure by the number of months he owned it.

He then multiplied the gain made on selling the property by this fraction, to arrive at the figure that tells him how much of the gain is tax-free because of Private Residence Relief.

This simple phone call consultation enabled my client to clearly navigate his way around CGT and related issues, to ensure that he had complete peace of mind on the property tax query facing him.

There useful resources for property investors provided by my expert property tax team around CGT for property investors, including:

Capital Gains Tax – the basics & planning

My YouTube video on Capital Gains Tax

How to mitigate CGT & SDLT liabilities

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