The property market can be a complete minefield of costs and expenditures, and when tax bills are added as well, it can drive a person to tears. But 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.
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 and over. Short-term this has been reduced until 31st March 2021 but if you’re going to take advantage of these reduced rates, you need to move fast!
Typically, the percentage you will have to pay increases depending on the bracket your property falls into.
Whether or not you pay Capital Gains Tax (CGT) on the money you make from a property 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.
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.
In most cases, you will need to pay tax. If your buy-to-let investment property has risen in value by more than your CGT allowance by the time you sell it, you’ll have tax to pay.
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.
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.
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 on doing this are fairly strict, so this needs to be assessed carefully and fulfil certain criteria to do this 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.
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.
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 for protecting assets from dependants, who may otherwise use your property in ways you would not want.
There is a lot to get your head around if you are planning on any type of property investment, especially if you want to reduce your overall tax bill. The good news is 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 and contact our experienced team. We would love to discuss how our property investment services can help you make brilliant business decisions.
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Palmers Business Support was founded to help ambitous small business owners grow their personal wealth and achieve their ideal work/life balance. With accountancy as the central pillar of our offering, we take the view that timely accounts and efficient compliance is the bare minimum our cients should expect.