You pay capital gains tax on property when you sell a second home, buy-to-let properties, business premises, land or inherited property. There are separate rules if you sell your home or you live abroad.With capital gains tax, you will pay tax on the difference between the price you paid for the property and the price you sold it for, with a few deductions and tax reliefs. For instance, you deduct estate agents’ and solicitors’ fees, as well as costs of improvement works.
There is also relief calculated on capital gains – if the property was your home for a few years, a business asset or has been occupied by a dependent relative. To find out more on capital gains tax on property, visit the official government page here.
According to Budget 2016, the capital gains tax is at the 10% level for basic rate income payers (18% for some income categories) and 20% (or up to 28% for those on higher income tax brackets).
Time Your Sale
Currently, the first £11,100 income per year are tax-free, which means only income above this level is going to be subject to tax. If your capital gains are under £11,100 and you haven’t had other income sources, you will be tax free. So you can time your moment to sell in a year when you expect income to be lower.
Make Tax Economies
Investing in saving accounts or making a lump sum contribution to your pension of up to £4,000 can be ways of further reducing your capital gains tax on property.
Investing in businesses qualifying for the Enterprise Investment Scheme is another option to look into. Although accompanied by some risk, when you hold the shares for three years, you are not due capital gains tax on any profits made from sale.
Track Your Expenses
Whether it’s extending and improving the property or keeping track of fees paid to solicitors and estate agents, it pays staying organized and keeping a log of all invoices and receipts. You will have to make sure the expenses qualify though – for instance regular maintenance and cleaning costs or decorating don’t count.
Gift Assets to a Family Member or Donate
Property can be offered as gift to a spouse who would qualify for a lower tax break. Also, donations of property to charities are free of capital gain tax and offer you further tax relief.
If you are in doubt whether this is a good time to sell, give your local Clyde Property branch a call. We will help you carefully look into your current portfolio, analyse rental returns and weigh that against a potential sale. That is one of the many advantages of working with an estate agent that specialises in both letting and sales.
Clyde Property is a leading independent, multiple award winning estate and letting agent with 30 years’ experience in selling and letting property in Scotland. Just call your local Clyde Property branch today, for friendly, impartial advice on finding your next dream home.