Save Tax On Your Property Sale

Save Tax on Your Property Sale

by

Ian Marlow

Increasingly, people have more than one property and this property is often held jointly either because it has been left to children in a will or purchased jointly in order to receive income from lettings. In order to avoid an unexpected tax bill and to plan effectively for minimising the tax liability before the sale goes ahead, it is important to know how much tax you might be liable to pay when you sell a property? Talk about it sooner rather than later in order to avoid a difficult financial situation being suddenly thrust upon you.

Of course if the property is your primary residence then you will be entitled to claim Principal Private Residence Relief (PPR) which means there will be no capital gains tax (CGT) when the property is sold. Otherwise, it is important to know who owns what before disposing of an asset and it is not always the person you think who owns the property and therefore has to pay CGT on the disposal.

In order to decide that you will need to consider who profits from the sale of the property. In general the tax liability follows the ownership of the asset, and so the owner has to account for any gain on the disposal of property and pay tax accordingly. It’s not just a house that may be caught by the CGT rules either. Land is included as are houseboats and caravans (unless let as part of, say, the trade of a caravan park).

There are two types of property owner in UK law. The first is the legal owner of the property. This is the commonsense understanding of ownership i.e. the person who holds title to the land as can be found at the Land Registry. The second is any person with a financial interest in the property which gives them a share in the disposal proceeds. This might be an active interest such as living in the house as a home or a passive interest like providing for a deposit to buy a property with an agreement that the deposit will be repaid out of the proceeds of the eventual sale. Sometimes, the legal and beneficial owners are exactly the same people such as a husband and wife who jointly own their home.

So, will everyone selling a second home be subject to CGT? If you live in the UK, the answer is generally yes, wherever the property is situated. That is because UK residents are taxed on their worldwide income. There may be an exception if you are not domiciled in the UK and do not remit the payment here, but the general rule remains that your worldwide income is taxed and you have to report this on a self assessment tax return. If you are both resident and domiciled in the UK, it does not matter where the sale proceeds are kept. However, if you have left the UK and some years later sell a property, then you may legitimately avoid paying CGT on the sale but will have a potential tax liability to report in the country in which you currently reside.

There is though plenty of scope for tax saving when selling a property. Transfers between spouses or civil partners, electing to make the second property your main residence (provided this can be supported by fact) and the timing of the sale can all potentially save significant amounts in tax. Advance planning is the key and it can be very effective to take some quite simple steps. Waiting until the sale is completed simply won’t work however. And the rules are complex and regularly change so with CGT above all tax issues, employing a tax advisor is likely to be cost efficient. If you are thinking of selling a second home, then make sure you obtain some good professional advice soon.

Ian Marlow runs HFM, a

London tax

and accounting business serving clients both resident in, and living outside, the UK. For more detailed tax information and access to their excellent free monthly tax newsletter, go to the HFM website =>

hfmtax.co.uk

.

Article Source:

ArticleRich.com