Written by Ray Coman
The UK property market continues to attract speculation. However, gains achieved on property can bring about significant tax exposure. Where a person owns a property which is not also their home a potential liability to capital gains tax arises. Typical situations include, a homeowner seeking to retain ownership of a former residence; a beneficiary wishing to invest an inheritance; and an international investor hoping to achieve financial security.
An increase in value on the owner's home is usually not liable to tax. This is explained in more detail in the guidance on principal private residence relief. However, gains on a property which is not the owner's home, regardless of whether it is rented, will be potentially liable to capital gains tax. The potential gain is consideration, less costs of sale such as conveyance and estate agent fees less purchase price and costs of acquisition such as stamp duty and legal fees.
Consideration is disposal proceeds where a property is sold or market value where a property is transferred as a gift. Where a property is sold for less than market value to a connected person, such as a family member, consideration is based on the market value of the property at the time of gifting. Transfers between spouses are deemed to take place for such consideration as gives rise to neither a gain nor a loss.
A capital gain may also be reduced by any improvements made to the property. The disposal is treated as occurring in the tax year of exchange of contracts, and the tax year runs to 5 April.
Please consult the following summary for the applicable rates and allowances for capital gains tax.
With experience advising on numerous issues around capital gains tax and other taxes related to property transactions, we are well placed to assist with your queries