Capital gains tax on property sale
With the London property market soaring, exposure to capital gains tax is sharply on the rise. Tax accountant, Ray Coman replies to the questions this raises.
When I sell my property will I have to pay tax?
You will only pay tax on the sale of property that has not been your home.
How much could my tax liability be?
A gain for tax purposes is the increase in value between buying your house and selling it. This taxable gain can be reduced by costs of purchase, of sale and improvement to the property. Any losses you have made previously, and your annual allowance, currently £10,900, could further reduce the taxable gain. Most of the gain would probably be taxed at 28%.
How is my tax reduced if the property used to be my home?
The proportion of gain during which a property was your Principal Private Residence (PPR) will be exempt from tax.
You will be treated for tax purposes as living in the property during certain periods of absence, such as when required to temporarily relocate for work. However, you can only have one PPR at any time. For a final period, you are deemed to live a property, even if you actually lived elsewhere, and did not return to live in it. For properties exchanged before 6 April 2014 the final period is 36 months, however it then reduces to 18 months.
If you let a property that was once your home any gain is further reduced by up to £40,000, per owner.
Would I save tax owning a property through a company?
There is rarely any tax benefit to owning a property in a company. Any gains are subject to corporation tax, and when taking gains out of the company, further tax liability is likely to arise on dividends. A company is not eligible for PPR relief or an annual exemption.
Should I transfer the property into joint names with my husband or wife before selling it?
An acquiring spouse 'inherits' the actual and deemed periods of occupation of the transferring spouse. Transferring a property can, therefore, save a couple tax. However, a person, or a married couple, can only have one PPR at any time. Therefore, if the transferee spouse was previously a homeowner, the transfer could create a significant tax liability.
Transfers between spouses are exempt from capital gains tax.
I had two homes, what happens if I sell one of them.
The fortunate few who have two homes at the same time could benefit by nominating one of the properties as a PPR.
How is my tax position affected if the property market does not increase?
If price stagnate, the effectiveness of PPR will diminish. If you sell your home for less than you bought it for, the loss cannot be used to reduce any taxable gains you make in the future.
Coman & Co can advise on the tax implications of your property investment plans. Please contact us for a free consultation.