Many landlords and property investors are not familiar with how to off-set capital gains tax effectively, this often leads to tax bills much larger than they ought to be.
Our expert tax advisors can advice on how to structure such disposals effectively, to minimise capital gains tax bills.
There are several tax reliefs available to offset Capital Gains Tax on the disposal of properties. whilst the applications of the rules can be complex, we have expert knowledge in this field and can advise you.
Private Residence Relief
Private Residence Relief (PRR) is currently available when you rent out a property that was once your main residence. Private Residence Relief is available for the amount of time you lived in it, together with an 9 month grace period up to when you sold it, regardless of whether you lived in the property during this period or not, even if it was rented out during this period. (This 9-month period of grace was reduced from a previous 18 -month period for sales occurring from 6 April 2020).
Applying this relief correctly can have a considerable effect on reducing the amount of Capital Gains Tax due when disposing of a property you once lived in.
Lettings Relief was a generous tax concession, which was significantly restricted from 6 April 2020. It is now only available for disabled persons, or those in a care home or where the owner of the property is in shared accommodation with a tenant.
In these circumstances, the relief is worth up to £40,000, per person, per property. Lettings Relief is available, in addition to Private Residence Relief, for properties that were once your main residence. This sizable relief is the lower of the amount of private residence relief available in respect of the letting, £40,000, or the amount of the gain arising by reason of the letting.
Capital Gains Tax on overseas properties
If you are a resident in the UK, you pay Capital Gains Tax when you dispose of overseas properties. If you are resident in the UK, but you are domiciled abroad, special rules can apply.
This can be a complex area of tax, which we regularly advise upon. In addition to paying tax in the UK, you max also have to pay tax in the country where the gain was made, effectively paying tax twice. We can also advise if you are able to claim relief in this situation.
Capital Gains Tax for non-UK residents
If you are non-resident in the UK but return to the UK within 5 years of leaving, you may have to pay UK tax on the disposal of overseas properties.
Capital Gains on inherited properties
You will pay capital gains on an inherited property when you sell it, in the same way that you would pay capital gains on any other property.
If the property is residential, you may be able to claim Private Residents Relief or Lettings Relief, as outlined above.