As the regulations and tax are constantly increasing many of the UK property owners are choosing to sell their properties in the recent years.
Many landlords are missing out on money as they are not taking advantage of tax reliefs or property strategies to maximise their return. Your accountant can work out your tax strategies and execute a tax plan, making it easy for you.
A series of tax and regulation changes mean more buy-to-lets are being sold than bought.
Getting rid of a rental property may cause a lot of tax issues, with many complicated rules that can cost you profits. When a landlord sells he/she gets charged capital gains tax on any money they have made on their property, but there are legal ways to reduce your tax.
How to reduce tax?
Best to use all available reliefs
When selling a buy-to-let property, owners can offset a number of costs against their tax bill. These fees are estate agents’ and solicitors’ fees, stamp duty fees when purchasing the property as well as surveys and valuation fees and money spent on home improvements.
Best to move in to the property
You do not have to pay capital gains tax when selling your main home. Some landlords can reduce their tax bill by claiming this relief if the rental property they sell has at some point been their main residence.
What do you pay it on capital gains tax?
- Investments i.e ISA’s including shares, bonds and other securities
- Property in the UK that is not your main home – holiday homes, buy-to-let properties
- Overseas property (if you are resident in the UK for tax purposes)
- Property you inherit – the gain is counted as the difference between the property value when you inherited it and when you sell the property
Many property owners move into the property to pay less tax.
Set up a company to own the property
Holding investment properties within a limited company comes with a number of tax benefits. You can deduct your mortgage interest payments from your income on your tax bill.
When you want to sell your rental properties, you pay corporation tax on the sale. Corporation tax is currently 19pc, lower than capital gains tax.
This company can also collect rental payments. Landlords are charged corporation tax on their earnings, rather than income tax.
Unlike income earned by individuals, there is also no National Insurance contributions due and if the company pays out less than £2,000 in dividends in a financial year, these payments are tax-free.
Make the best of your partner’s tax allowances
Married couples and civil partners who sell a rental property can utilise gifting rules and their individual capital gains tax allowances to reduce their bill. If one member of the couple has already used up their capital gains tax allowance for the year they could gift their half of the property to their spouse, who can use their full tax-free amount.
It is best to ensure there is legitimate reason you could give to HMRC for transferring the property, i.e. that one spouse is mostly running the buy-to-let or put in a large amount of capital for the purpose. Otherwise you could be challenged.
Partners who are married or in a civil partnership can pass property between them without incurring stamp duty, unless the house has a loan attached to it.
Use a more tax-efficient way of investing in property
If government crackdowns have made it unprofitable to continue your buy-to-let business, there are other ways to get returns from the property market which are much more tax efficient.
One option is to put some of the profits from the sale into a real estate investment trust, which specialise in investing in property. This would give you access to potential gains in the market without the hassle of managing tenants and filling in tax returns.
Shares in investment trusts can be held within an ISA, meaning any returns you make are free of tax.
Please contact Pelin Martin to book a 30-minute complimentary property consultation on +0208 994 7327 – email@example.com