Selling
any asset for more than you originally paid for it means
you have made a "capital gain" and are therefore liable
to the dreaded capital gains tax (CGT). The only exception
to this is if the property is your own home, called your
"private principal residence".
There
are ways of reducing this bill, however, and some of these
are mentioned below:
everyone
has an annual CGT allowance (set by the government and altered
in various budgets) which means they can make a gain of
that amount before incurring any tax liability. If you are
discussing a jointly-owned property then the tax allowances
can be "pooled"
gains
or profits can be offset against losses elsewhere, so if
you disposed of one asset with a loss of £5K, you could
add this £5K as an additional allowance on top of your annual
CGT allowance
CGT
can be reduced by capital costs incurred when purchasing
and certain renovations (although some of the work may be
more appropriately (and more profitably) listed as "revenue"
costs rather than "capital" costs)
if
the property was ever your private principal residence,
you may not be subject to CGT, depending on how long it
is since you lived there
currently,
you can transfer property between spouses (or same sex Civil
Partners) so you can use their CGT allowance without incurring
a CGT liability in doing so
you
could spread a sale over more than one year by selling or
transferring in agreed stages so you can use more than one
year's CGT allowance
taper
relief applies to CGT, meaning that the longer you hold
the asset, the less you will pay in CGT, another benefit
of this is that if the asset was held by one spouse and
transferred to the other, the length of taper relief will
be counted as the combined period it was held by both spouses.
Whether your property qualifies for business taper relief
or non-business taper relief depends on how you conduct
your property business, i.e. are you trading or investing?
This is important as the reliefs available vary according
to the answer.
Instead
of selling and incurring a CGT, why not remortgage? You
can take out lump sums and do whatever you like with the
money without paying the CGT. You should be aware that the
CGT will become due should you decide to sell up or transfer
the property at a later date and it will be due on the difference
between the original purchase price and the value at the
time of transfer, regardless of how much borrowing you have
taken*.
Perhaps
best not to sell at all during your lifetime. When you die,
your CGT liability dies with you and the tax due becomes
the most dreaded of all… inheritance tax (IHT)!! See my
article on IHT for some ideas about what you can do to reduce
or wipe out your IHT bill.
*There
may be an ongoing income tax liability, however. See my
article on income tax for a discussion on the implications.
©
Maria Davies, www.WomenInPropertyInvestment.com
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