Although it’s a bit easier now than it used to be, what complicates matters is the number of laws that dictate what you can and can’t do. And change is frequent – it seems as though every budget brings a change to tax laws. That can add even more complication for you.
You may not have come across them before, but there are a number of property tax laws that apply to you and any investments you make into property. They tend to affect income from rental properties, plus any profits you make from selling houses you own.
Use this simple guide to wade through property tax and understand how it could affect you.
First off, the good news. If you’re selling a property that is your main home, you won’t pay tax on it, as long as you satisfy certain conditions.
There’s nothing in the conditions to scare you. You have to have bought the property and spent money on it primarily for use as your home rather than with a view to making a profit. The house also needs to have been your only home during the time you owned it, and you have used it as a place for your family and no more than one lodger to live.
There’s also a condition that won’t expose you to property tax unless you have a huge amount of land. The garden and area of grounds sold with the house can’t exceed 5,000 square metres, which is about one and a quarter acres. This includes the site of the actual house itself.
The law continues to say that if you are married or in a civil partnership and not separated, you and your spouse or civil partner can only have one home between you. And there is some good news – even if you don’t meet all of these conditions, there is still a chance you will be entitled to property tax relief on your property. It’s something you should talk to an accountant about.
So what if you have a second home – will you be liable for property tax on that? It’s not such an unusual question these days. Buy to lets are becoming a more and more popular investment, and any tax laws that affect the profit you make from a sale will affect your future lifestyle (especially if you are investing in property for your retirement).
For property that’s not your main home, you will normally be charged capital gains tax if you make a profit when you sell the house (and by a profit, the Inland Revenue means you make more money than you paid for it in the first place).
In the current tax year (2007-2008), you are allowed the first £9,200 of your total taxable gains to be tax free. And there are a couple of other conditions to help reduce your tax bill.
First off, when working out your profit, remember you can deduct some of the costs of buying, selling and improving the property.
If you are unlucky and make a loss, you may be able to set that off against other profits you make. This is handy way to reduce your liability to property tax if you are a property developer who buys and sells houses regularly, and gets one wrong!
Finally, if you are living together you can transfer property to your husband, wife or civil partner without having to pay any capital gains tax. Unfortunately you can’t give it or sell it cheaply to your children or anyone else; this will potentially make you liable to be charged tax.
Remember to get professional advice from a qualified person before taking any action. Don’t rely purely on information contained in this article.
For further information please visit our website at http://www.propertytoday.co.uk or ring us on 01733 427177.
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