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Property Investments – helping you navigate the tax minefield

Property investments | Person holding a miniature house model.

Have you got property investments that are driving you crazy?

The property market can often be a minefield of costs and expenditures, and when tax bills are added as well, it can drive a person to tears. Although tax is inescapable in one form or another, with the right tax advice and guidance, there are ways of reducing it to a more palatable level.

So, let’s take a look at what taxes you need to know about and the steps you can take to keep your taxation bill as low as possible.

Taxes to consider when making property investments

Stamp Duty Land Tax, previously known as Stamp Duty, is an amount you normally have to pay if you buy a property worth £125,000 or more.

Typically, the percentage you will have to pay increases depending on the bracket your property falls into.

Taxes due when you sell your home

Whether or not you pay Capital Gains Tax (CGT) on the money you make from a property investment depends on whether it’s your home. Selling your main home in the UK will generally mean you won’t be liable to pay CGT – this is because you can claim Private Residence Relief on any profit, subject to certain conditions being met. But be aware – there are exceptions, so if you have any doubts, please get in touch with your friendly Aylesbury accountants for advice.

Paying Capital Gains Tax on second homes

If HMRC decides that a property isn’t your main residence, you will have to pay CGT on any gain in its value above your CGT allowance.

Capital gains tax on buy-to-let property investments

In most cases, you will need to pay tax. If your buy-to-let property investments have risen in value by more than your CGT allowance by the time you sell it, you’ll have tax to pay.

Paying capital gains tax on inherited or gifted property

If you give a property to your spouse or civil partner or to a charity, there won’t be any CGT to pay. If you inherit a property (and any inheritance tax due has been paid by the estate) then there won’t be any further tax to pay until you sell the property.

If you sell a property that was occupied by a dependent relative, then you may not have to pay CGT. Make sure you take business advice about this from experienced advisers, such as Palmers.

Working out your CGT Allowance

Similar to other forms of taxation, the amount of CGT you pay depends on your overall income. At the end of the tax year, any gains you made are added to your taxable income. You do have some allowances called the Annual Exempt Amount, which amounts to £12,300. If it’s a trust, it will be £6,150 instead.

Ways to reduce your Capital Gains Tax bill

There are various ways you can minimise or even eliminate a Capital Gains Tax bill.

1. Use your spouse’s allowance

Remember that everyone has a CGT allowance, so if you are the sole owner of a property, you can double your allowance by sharing ownership with your spouse.

2. Take note of the different CGT bands

Basic rate taxpayers pay lower CGT, so if you are higher-rated and your spouse isn’t, you could reduce your CGT bill by transferring all or part of the property into their name. It’s worth thinking about the most efficient way to do this so you make best use of both your allowances.

3. Time your sale carefully

If you have used up some or all of your CGT allowance for a particular year, consider delaying the sale of your property to the next tax year.

4. Nominate the property as your main residence

If you own several properties and wish to sell one, you may be able to reduce or eliminate your CGT bill by nominating it as your main residence in advance. The rules for doing this are fairly strict, so this needs to be assessed carefully and fulfill certain criteria to do it properly.

5. Deduct certain buying and selling costs

It is possible to deduct some costs when working out your CGT bill, including legal and estate agents’ fees and stamp duty incurred when buying the property. Costs involved with improving assets, such as paying for an extension, can also be taken into account when working out your taxable gain.  However, you’re not allowed to deduct costs involved with the upkeep of the property.

When does Inheritance Tax apply?

This is paid on your ‘estate’, which includes everything you own when you die, such as property, investments, and possessions. However, it does not apply to everyone. Your estate must initially be worth more than the £325,000 threshold (this can increase to £500,000 if it includes property) for it to be taxed. However, if your estate is left to your spouse or civil partner, then this tax does not apply, even if it is above this threshold. If in any doubt, please get in touch.

What are Trusts?

Trusts are legal bonds within which property can be owned, as opposed to private ownership. They have long been a loophole for the cost-conscious property investor. Trusts can also be used to protect assets from dependents, who may otherwise use your property in ways you would not want.

Lost in the property investments tax minefield?

If you are planning on making property investments, especially if you want to reduce your overall tax bill, there is a lot to consider. The good news is that as tax accountants, it is our role to provide investors with a wide range of tax services so they fully understand any tax implications and what solutions are possible.

From providing advice on different types of investment,  such as building a home office in your garden to buying a second home, we’ll take the hassle out of property tax issues. We also offer a full range of accountancy services so can also help you with tax returns, business continuity plans and how to make the right investment decisions.

Please get in touch with our experienced team by calling 01296 662322 today. We would love to discuss how our property investment services can help you make brilliant business decisions.

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