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Can I increase borrowing to minimise or avoid CGT?

Question

I have a house for sale for 115000. At present I owe £75,000 on it. If I increase the borrowing on it tomorrow to £105,000 then sell it for £115,000 in 8 weeks time will I have to pay tax on the £10,000 profit? I do not live in the property.

 

Arthur Says

The CGT liability is based on the purchase and selling price of the property not on the amount that is owed on the property.

 

For CGT purposes it does not matter what the outstanding finance is on the property.

 

Therefore if you purchased your property for £50,000 and sold it for £115,000 then you could be liable to pay tax at up to 40% on the £75,000 profit.

 

This is even if you owe £115,000 on the property. As you can see if somebody continues to increase the mortgage on a property (via equity release), then it can sometimes become difficult or impossible to pay the CGT liability from the sale of the property.

 

Off course there may be a number of relief’s that may be available i.e. CGT allowance, non business taper etc to help reduce the liability.

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