• Home
  • News
  • Can You Afford To Sell Your Houses?

Can You Afford To Sell Your Houses?

Can You Afford To Sell Your Houses?

The average landlord has 4 houses and keeps them for 15 years. House prices historically, have doubled (before adjusting for inflation) every 10 years and today, the average house in the city costs £225,000.

That means an average landlord who decides to sell his portfolio today, probably bought the houses just after the millennium and paid just under £100,000 each. So, for an outlay of say, £400,000, today he has a Capital Gains liability of half a million pounds.

For those who need to understand the arithmetic - selling 4 houses at today"s average price will bring in 4x £225,000 which is £900,000. Less the original purchase cost of £400,000 and that leaves £500,000 liable for capital gains.

Some landlords will say - but I bought it all on mortgages, so I did not make that much. Unfortunately, you did. If you were less financially risk averse and used the profit from the 1st to buy the 2nd and so on, you may now have £900,000 worth of houses with mortgages of, say, £700,000 - so a 'profit" of £200,000, but from a capital gains perspective you will still have to pay tax on a gain of £500,000.

In extreme cases, landlords will owe more tax than they will have left after selling the houses and paying the mortgage.

It used to be the case that capital gains were 'inflation adjusted" to the extent that if you held a property for say, 10 years, you would have no capital gains to pay. Today unfortunately this situation is reversed -if you bought something for £1 and you sell it for £2, you pay capital gains on the £1 gain regardless of how long you have owned it and, even more bad news, if that £2 you sell it for is only worth 99p when adjusted for inflation over the period of ownership - so in real terms you made a loss, you still owe tax on the £1 gain.

So in our example where our landlord has a £500,000 capital gain, what does he owe? Well, it depends on whether he is a higher or lower rate taxpayer and when he made the sales (as there is a tax-free allowance each year so he/she would be better selling 1 house per year and using the allowance 4 times than selling them all together) and whether he/she is married and willing to share ownership (and thus taxes and allowances) with a partner. But in simple terms, as soon as you become a higher rate taxpayer then you pay capital gains on your 'gain" at 28% after allowances.

In simple terms - sell all 4 houses in one tax year when your allowances have already been used and you could be liable for (5x28) £140,000 capital gains tax. You can avoid it completely by never selling - but then when you die your heirs pay IHT at 45% - this works for the landlord whose 'gain" exceeds what is left after paying the mortgages (as it is 45% of the net gain as opposed to 28% of the total gain), but most will be worse off.

What should you do? Step 1 is to have a plan. No 2 situations are the same, so you can either pay good money to a specialist IFA to make a plan for you, or you can make your own. Our recommendation is that you make your own - it is your money and no one will care about it as much as you. Well, someone at HMRC might, but no one else.

How do you make a plan? Start by understanding the options, what works, what doesn"t, what you should and should not do - the best way to do that is education. We have considered adding sessions on CGT and IHT to our monthly meetings but both topics are too complex for a 1-hour presentation and they need to be delivered by experienced trainers.

The good news is that working with the RLA we are able to offer a 1-day training on CGT and IHT - we don"t promise to save you a fortune, but when you are facing a CGT bill of £140,000+ how much do you need to save to justify a days training? Especially as it is tax deductible! If you are interested in attending, This email address is being protected from spambots. You need JavaScript enabled to view it.

By accepting you will be accessing a service provided by a third-party external to https://pdpla.com/

Written & oral information and advice from the Portsmouth & District Private Landlord's Association is given in good faith, but no responsibility whatsoever is accepted by the Association or it's officers for the accuracy of it's information & advice nor shall the Association be held responsible for the consequences of reliance upon such information.

Copyright © - PDPLA
A private company limited by guarantee number 4444664.
Registered in England at 214 Chichester Road, Portsmouth PO2 0AX.

Site designed by This email address is being protected from spambots. You need JavaScript enabled to view it.
Web design, hosting and domain management.
Discounts for PDPLA members.