The British tax office – HMRC – has targeted property investors in recent years. Second home owners, buy-to-let and international investors have all effectively been surcharged, especially with Capital Gains Tax (CGT). What can you do to limit your exposure to Capital Gains Tax in the UK?
The shortage of UK housing – and subsequent rise in values – has offered the British chancellor an opportunity to tax landlords to the maximum. And he has taken that opportunity. There is, for example, an extra 3% stamp duty payable for international buyers. Another way has been in Capital Gains Tax.
What is capital gains tax?
CGT is, roughly speaking, a tax on the profit from buying and selling a property that is not your main home. The god news is that there are reliefs and allowances that you can deduct from the profits. Most notably, the costs of buying, selling and improving the property.
Reliefs and deductions
Buying and selling costs: You can deduct the costs of a surveyor, the costs of searches, disbursements, money transfers and Stamp Duty. You can also take off any selling costs, such as estate agent fees.
Improvements: Although natural wear and tear and redecoration can’t be deducted, something that has raised the value of the property can be taken off. An extension, for example, or new garage.
Living there: There is Private Residence Relief (PRR) means that you can knock off the capital gain for any period when you lived there. Even if you subsequently rent it out, you can claim for the period you lived there. As evidence, HMRC will consider such evidence as the electoral role, where your car is registered, etc. So hold on to these records.
Marital status: There are advantages either in being unmarried (if you have two properties each could be primary residences so long as you’ve lived in each) or married (each of you can claim the tax-free allowance). Speak to your accountant about this.
Offset losses: Your capital gains liabilities are not just based on your property profit, but from your assets too. If you have made any losses elsewhere in your portfolio during the tax year, these should be taken out.