Will capital gains tax apply if a sale of a buy-to-let property is used to purchase another?
Q I own a buy-to-let property and am considering selling it to fund the purchase of a larger buy-to-let investment property. In essence, I would be moving the investment from property one to property two. The sale proceeds of property one (after deduction of the outstanding mortgages) would be fully used as a deposit for property. Would capital gains tax still apply, even though the investment has moved to another property?DP
A Yes, capital gains tax (CGT) would still apply but, no, you wouldn’t be able to defer paying the tax by claiming business asset rollover relief – which is what I assume you are hoping to do. If you are eligible to claim it – which you are not – rollover relief lets you put off paying any CGT due on the gain from the sale of a business asset until you sell the business asset to replace it but only – among other things – if you are trading. Unfortunately for you, HM Revenue and Customs doesn’t consider investing in a buy-to-let property as trading. So you will have to pay CGT at 18% or 28% (depending on the rate of income tax you pay) on the gain you make on property one less the new £6,000 CGT allowance (which is down from £12,300 in the 2022-23 tax year and due to go down further to £3,000 in 2024-25).
You would be eligible to claim rollover relief if you sold a property that is furnished holiday letting and bought another one. To count as a furnished holiday letting – and so qualify for rollover relief – the property must be furnished and available for letting to holidaymakers for at least 210 days in the tax year and let as holiday accommodation for at least 105 days. More information on who can claim rollover relief – and how to do it – is available in helpsheet 290 business asset rollover relief
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