Mark Evans & Co. Accountants have extensive knowledge of the issues surrounding taxation of property and we offer a great range of property tax advice. You will pay no capital gains tax when you sell your family home as long as it has been used for the entire period of ownership, as your private residence.
But what do you do if you either have, or are considering the purchase of, a second home?
Individuals are charged Capital Gains Tax (CGT) in respect of profits made from selling, or otherwise disposing of assets. Although there is relief from tax for your main residence, any subsequent properties that you buy will be subject to capital gains tax on any profit on the sale. This applies to rental properties as well as holiday/weekend homes used by you and your family. There are ways to reduce the potential liability with various reliefs, which can sometimes negate the tax due completely.
If you do own and personally use more than one property in the UK, it is possible to make an election to nominate which property should be treated as your main residence for tax purposes. We can advise on the implications of making such an election, the qualifying conditions that must be met and help to decide if it would be beneficial for you depending on your personal circumstances. There are strict time limits for making this election, which has to be filed with HM Revenue & Customs, so it is important that advice is sought promptly.
If you rent out property you will pay income tax on the difference between the rents you have charged in a tax year, less any allowable expenses and charges.
Allowable expenses can include:
• Mortgage or loan interest
• Furniture replacement
• An annual 10% wear and tear allowance (due to cease after 6 April 2016)
• Maintenance and servicing
Always ensure that valid receipts are obtained and retained for all works carried out. This can make claims for allowable expenditure much easier as some costs can be classified as Improvements.
At present, if you rent property that qualifies as furnished holiday lettings, that is to say it is let for at least 70 days and is available for letting for 140 days in any one tax year, you will qualify for certain additional tax benefits providing that no single letting exceeds 31 days. Unlike residential and commercial lettings, furnished holiday lets have trading principles applied to them. This means you are able to take advantage of favourable relief for any loss you make on renting the property AND on any profit you make when sold.
If you let rooms in your own house, you will not pay tax if the total rents charged are under £4,250 per tax year (this allowance is due to increase to £7,500 after 6 April 2016)!
We can provide you with advice regarding all tax aspects of buying, selling and letting property. We have only included a few areas for you to consider on this web page. If you are about to invest in, dispose of, or let property do give us a call.
With property transactions, it is essential to seek the correct advice before making the decision.