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Found 26 results

  1. Hi gang, you've been very helpful in the last, I'd love you to bend your brains to this... I lived in my house for 10 years, then got married to a lady who owns her own house, but made mine our PPR for the last year or so. Now we're going to move into hers, remortgage mine to LTB and let it out long term. She doesn't have an income and I'm self employed and tickle the higher tax rate, so it would make sense to transfer the equity at a 99% split in her favour. It'd cost £5500 SDLT to do so but we'd make an extra £2000 per year so that takes care of itself fairly soon. What are the CGT implications for the eventual sale though? We're unable to share the equity on the current residential mortgage (which would allow her to step into the shoes of my PPR and get the whole ten year proportion of nil CGT) as the current lender won't allow it. Is the extra £2k per year cancelled out by her share of the CGT on eventual sale? Key facts: house is worth £550000, mortgage is £300000. Thanks in advance team!
  2. Hi, quick tax question for the people far more knowledgeable than me! i understand that an individual when selling a BTL property will pay capital gains tax - on the gain (excluding my allowance). i am a higher rate tax payer, so i understand this would be at 28%. if i hold a property within a ltd company and then sell it, i pay corporation tax - can someone tell me what the rates (%) are and is there such a thing as an allowance, like there is with CGT?? Many Thanks Marc
  3. Hi there, I have a good one to get the hive mind thinking. I potentially want to buy a house for my child. This isn't an IHT dodge or anything like that. It's actually just for personal reasons. She's a minor and would live in the house with her mother. In fact, my daughter doesn't even have to own it. She just has to live there with her mother. I'm trying to work out the most cost effective way (in the short / medium term) to make that work. Long term is probably less of an issue because it would be her main residence. I could buy it for her but she's too young to own it legally. And if it's in a trust, how does it work because I'll be paying the mortgage. It would have to be fairly heavily leveraged. I can put it in a trust but seems overly complicated. If I own it myself, I'll have to pay the additional Stamp and they pay CGT when she takes it. Thoughts? Kieron
  4. Hi, I'm looking at selling a property that was gifted and am trying to determine if CGT needs paying on it. Property was gifted in September 2016 to 2 people split 50/50 ownership. Value in 2016 ~250k Value now 2019 ~265k So based on 7.5k profit (15k / 2), minus costs ~3k each and minus CGT allowance (12k per person) I work out that no CGT would be payable. However the property has been let for most of that period (Feb 2017 - now). So I'm not sure how this works CGT wise. Question: I'm getting a little confused if we would get letting relief and residence relief and if so how would it be applied? Any enlightenment would be much appreciated Thanks Lewis
  5. I recently set up an SPV to invest in property and capitalised it with 300k of personal funds. I purchased a London property for 700k and refurbished it (at a personal cost of 150k) with a view to resale. The balance of the property was financed on a commercial loan in the company name which now totals 500k. I personally cover the loan interest by extending the Director Loan account. The property is worth around 1.1m now (would have been more but for the slow-down in London). The total director loan is now around 450k. I would like to transfer A 50% SHARE/PART OF THE PROPERTY BACK TO MY PERSONAL NAME. What is the best way to do this, and are there CGT and SDLT implications on either personal or company side? Regards PJ
  6. Should I sell this property? One of my properties is a 2-bed terrace in Bristol. It's my former home which I converted to a buy to let a couple of years ago. It has had good capital growth and is now valued at around £320k. The rent is £1,100 per month. The capital growth means there is a good amount of equity in the property (£160k). As my property investment knowledge has grown over the last couple of years, I have been considering whether this money would be put to better use elsewhere. I have tried to pull money out by remortgaging to invest further in other locations. However, as it is not particularly high yielding, the property does not satisfy the rental stress tests to release any equity. Whilst the Bristol market was taking off in terms of capital growth, I was reluctant to sell despite the low rental yield. Now, with the flat Bristol market, I am really starting to wonder whether now is the time to get rid of this one. In the long term I am confident that this property will experience further capital growth – great area, lots of investment going in etc., but my concern is the lost opportunities that I might be missing out on by not investing in other areas/properties (e.g. with the £160k I might have enough for maybe 3 or 4 flats in one of the northern cities which are currently performing well). Another thing pointing towards selling is that a sale before April 2020 would incur no capital gains tax (as it's my former home, I would get a combination of PPR and lettings relief). The changes to PPR and lettings relief announced in last month's budget mean that, from April 2020, I estimate a CGT bill of around £7.5k (based on a sale at £320k). On the other hand, there's no CGT until you actually sell so if I hold the property for the very long term then that won't be an issue. I appreciate your answers to this might depend on what my strategy is. I'm 34 and aiming for looking to use property to fund retirement at around 50. I generally favour capital growth over rental yield, although as new parents both my wife and I are already working part time and a decent rental yield might help us further cut down our hours in the future. Grateful for any thoughts you can offer. Thanks Matt
  7. Hi there, I wonder if anyone had an opinion on using ones CGT allowance when flipping a property. My accountant has said I should avoid using this allowance when buying a property with the intention to sell it (flip it) once refurbished as the profit made from the sale are income and not a Captial Gain. Does anyone have any experience with this? If treated as income tax, I am going to move the property into a Ltd Company (it is mortgage free) and take the Corp Tax hit. That way building up some history in the Ltd Co which commercial lenders like to see. Apologies if this topic is covered elsewhere. if it is please point me in the right direction. Thank you Alistair
  8. Hi all, My siblings and I are the only beneficiaries in our father's will and are due to receive various assets including two properties, and a portion of another property. We are assessing our options with how to administer the estate, and have two options: 1. Receive all assets as per the will and be subject to IHT. 2. Step aside as beneficiaries and allow all assets to pass to our mother, meaning no IHT due as they were married. My mother would then gift the assets to us in full. Thinking specifically of the properties, I am hoping that as they are mortgage free there would be no stamp duty payable, and also no capital gains tax due as they will be signed over to us straight after she receives them and thus no capital gain - is this correct? Then thinking into the future, if we were to let out the properties for a few years then sell, am I right in thinking CGT would be due on the difference between their value at the time they were gifted to us and their sale price? Or would the entire sale value be subject to CGT as they were signed over to us for free? It seems that option 2 is the best option in any case, but if anyone could provide any guidance as to our position on stamp duty and CGT if we were to take that option, and let me know of anything I might be missing from the equation... I would be hugely appreciative. Thank you. TDH
  9. Hi, I have a ltd co, currently with 4 properties within. I also have a btl property in my own name which I am considering transferring to the ltd co. I understand that I will be liable for the 3% stamp duty and potentially cgt on any gains based on current ‘market value’. However I am unclear who determines market value (please don’t say the market:) ) and what evidence is required as proof, so I can calculate the tax due? Any help appreciated Regards Dougie
  10. Hi everyone, Can I reduce my CGT by making a pension contribution? In this quarter's magazine it says that making a pension contribution increases the higher rate threshold by the gross value of the contribution, so would reduce CGT from 28% (higher) to 18% (basic) on that value. But my situation is this. Earned+rental income is approximately £20k - so I'm a basic rate taxpayer. This year, I have made a taxable gain (fater relief) of approximately £20k. So I am facing a CGT bill of 18% (basic rate) on £20k = £3,600. I was planning on making a gross pension contribution of £20k, reducing the CGT bill to nil. That was how I understood it, until I read what the magazine said this week. Can anybody help, please? I can and would make the contribution if it helped, but wouldn't if there wasn't this benefit. Many thanks everyone! David
  11. Hi, I have a loss of about £50k in capital gains losses. Am I right in understanding that HMRC no longer allow losses to be carried forward indefinitely and I will just have to kiss that money goodbye? One option is to sell other properties which would allow me to use the loss before it "expires", but doesn't seem like a very smart idea in general... Are there any other options that I'm missing? This is a pretty bitter pill to swallow if I can't use the losses as and when I wish to sell up in future. Many thanks!
  12. All, I'm looking for some feedback and advice on my proposal to move property into an established property LTD company that I set up in 2013 for student pods. Although I will incur CGT and SDLT obligations I expect to manage that through separate capital losses and remortgaging. I would be withdrawing money from the company but that would be via the Directors Loan account which covers the debt the company owes me. I'm looking to transfer as I'm a higher rate tax payer looking to be more tax efficient by shifting from income tax to corporation tax. I've provided accurate figures where possible but have had to make some assumptions, hopefully its clear which is which. LTD company Set up as a property company late 2013, its current assets are two student pods worth around £110k and debts owed to me of around £90k in the form of a Directors Loan account. The Directors Loan account is used to withdraw money from the company without incurring income tax. No Dividends or salaries have been paid so far. The gross income per year is around £8k, after transferring the properties the gross income will be around £33k. I have a small emergency fund of £2k in the business account which can cover all properties while I build up a larger fund from income. Personal Property I have two properties that I own outright with no mortgages. I lived in both as my main residence before renting and since they went on the market there have been no void periods. The current valuations are based on Zoopla. I've incurred major redecoration and operational expenditure in the last three years which kept my income tax bill down but the properties have no substantial work planned for the next 3 years minimum . Property1 Current value: £240k Current rental income: £11.5k Rental start date: 2012-01 CGT obligation: 5 years SDLT obligation: £9.5K Property2 Current value: £287k Current rental income: £12k Rental start date: 2013-08 CGT obligation: 3 years 6 months SDLT obligation: £13k CGT Obligation this is my personal responsibility but I have a CGT loss of £120k that I'm carrying over from a failed business venture which increases to £131k if you include the yearly allowance. I want to use this up to soak up as much of the CGT obligation as possible. This might include transferring one property in 2016/17 and one in 2017/18/ to use two years CGT allowance. SDLT Obligation This is the responsibility of the the LTD so I would look to cover this by taking a BTL mortgage on the properties and paying directly to HRMC Directors Loan Account By transferring the properties to the business I expect the Directors Loan account to increase by £527k to around £615k. I would like to payback around 2/3 part of the Directors Loan by mortgaging the properties and withdrawing the funds, if that is not feasible I would draw down on the Directors Loan each year up to a limit based on the amount of net profit earned for the same period. Transfer expenses All costs of transfer should be claimable expenses by the LTD or me. The main costs should e covered by the LTD company but any personal expenses to be covered by taking money out of the company. I expect costs to include a solicitor and an accountant, I'm estimating around £1k in total because the transfer and tax calculations should be simple but understand it could be more. Corporation tax I expect to pay 20% corporation tax on net income of around £25k, so £5k PA. £25k covers income from 2 properties and 2 student pods. If I don't transfer the properties I expect to pay 40% income tax on £18k net income from personal property and 20% corporation tax on £7k net income from the ltd, that's £8.4k total tax a year. Year on year I should be saving £3.4k tax per year by shifting from income tax to corporation tax. BTL Mortgage I would like to mortgage both properties to gain extra capital to: 1) Cover the SDLT bill 2) Pay back some of the Directors Loan, this can cover any additional personal CGT above £130k 3) Increase property portfolio. BTL Mortgage would be interest only and eligible for mortgage tax relief within the LTD. Questions? How do I calculate the valuation of my property at the start of rental and as of todays date that is sufficient for HMRC? Are there any restrictions on withdrawing cash from the Directors Loan account with newly mortgaged funds? When do CGT and SDLT payments have to be made, is this an end of tax year payment or immediate? Do you have any other other suggestions or feedback on the proposal and what I may have missed or misunderstood? I hope this is also useful to others who might be in my situation and I'm happy to answer any question others may have.
  13. Hi, I was considering adding my wife to the title of a buy-to-let I have. Does anyone know the tax implications if any? If I gift here half the value is there an CGT or stamp-duty implications? We currently live overseas, and my thought process, was it was better to have her name on the title in case anything happened to me, as well as tax benefits later on if se sell the place to have cgt tax free amount in both names. Thanks.
  14. I am having a little trouble finding examples so hoping someone could confirm my understanding or advise where I might be going wrong. Purchased Property 1 (London) in Oct 2012 and Lived in it for 2 years until Sept 2014. After which It has been rented out Purchased Property 2 (London) in April 2014 and It has been rented out to date. Between October 2014 and December 2015 I was traveling/working abroad. Since my return to the UK in Dec 2015 I have lived at my parents house. It is my intention to move into Property 2 in October 2017 and Live there (minimum of 6 months) with the intention of eventually selling and moving into a larger Property. At the moment I´m assuming that the HMRC see Property 1 as my main residence (even thought I have not lived there for 2/3 years). No previous nomination has been made. By living in Property 2 and then selling would I be able to take advantage of the 18 months final period for CGT purposes (I thought it was 36 but I guess I was wrong) and also be exempt from the additional 3% SDLT on the new property? Thanks Andy
  15. Are you looking to sell some of your residential property investments? Are you looking to reduce your CGT bill? The problem — 28% CGT is a lot of tax to payI wrote an extensive article about the budget changes and how many residential property investors, especially higher rate taxpayers, have been targeted by George Osborne in the following ways: The reduction of mortgage interest relief to a basic rate taxpayer level of 20% The removal of the 10% wear and tear allowance The new 3% stamp duty land tax (SDLT) surcharge for additional properties There are many other issues identified within the article but the above three “features” can be crushing to the point where you can make a loss on your property portfolio and still pay tax. This, in my opinion, is wrong but we have to work with it or leave the sector. If you are thinking of leaving the residential property investment market then you need to consider capital gains tax (CGT). George Osborne also recently announced that CGT rates will be decreased from 18% to 10% for basic rate taxpayers and from 28% to 18% for higher rate taxpayers. On the face of it, you may think this is good news, but the devil in the detail reveals that George has singled out residential property investors again and stated that these discounts do not apply to them. Therefore residential property investors will still pay 18% CGT if they are basic rate taxpayers and 28% CGT if they are higher rate taxpayers. You could be forgiven for feeling rather paranoid about these tax changes and the way the government seems to be targeting landlords. Don’t forget, however, that each person still gets an £11,100 capital gains exemption for 2016-17. Ways to minimise your CGT liabilityThe below list is based on non-trading assets, i.e. residential property investments. There are other allowances that may be claimed for trading business assets, which I have detailed in another article. Use your spouse’s capital gains exemption and allowances using a deed of trust Spread the property sales over time to utilise your annual capital gains exemptions Contribute towards your pension to get income tax relief to reduce the overall tax burden Invest in Venture Capital Trusts (VCTs) Invest into an Enterprise Investment Scheme (EIS) Invest into a Seed Enterprise Investment Scheme (SEIS) Many property investors do not use their spouse’s capital gains exemptions. You may be in a position where you are a higher rate taxpayer and your spouse either pays no tax at all or is a basic rate taxpayer. As such you could be losing out on their £11,100 capital gains exemption and paying 10% more tax than you need to. There is a way to split the percentage of ownership to ensure that you utilise your personal capital gains exemption while minimising the percentage of CGT payable. I would suggest that you speak with your accountant about this. If you spread your property sales over time then you could take advantage of the £22,200 in capital gains exemptions (assuming you are married) available each year. If you invest the entire gain into one of the last four options then you would be able to mitigate the entire CGT liability, provided you meet the various requirements identified within each type of investment. Please note that I am not suggesting that you invest in any type of investment specifically, rather showing the tax reliefs that may be obtained if you choose to do so. There will be a degree of risk with any type of investment, which is mirrored by the below income tax reliefs. The higher tax relief often relates to the additional risk you take. You should speak with an FCA regulated financial adviser before embarking on any investment. Income tax reliefs for each type of investment In addition to the CGT mitigation, you will also receive income tax relief on the investment that you make as follows: 30% income tax relief for VCT investment up to a maximum investment of £200,000 30% income tax relief for EIS investment up to a maximum investment of £1,000,000 50% income tax relief for SEIS investment up to a maximum investment of £100,000 Please note that pension contributions will also provide you with income tax relief — my previous article provides more details on this. I also wrote a more detailed article on investing in EIS. Next steps — contact us to minimise your CGT liability If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar. Here are some options of how we may help you 1 - Accountancy & Tax support If you are a high rate tax payer then please book a call to discuss how we can help you in regards to accountancy and taxation services. We will describe our services to you but will not provide any tax advice on the call. Book some time with us a time that is convenient for you: http://www.optimiseaccountants.co.uk/accountancytaxservices/ 2 – Tax consultations If you would like to have direct support on a specific tax / accounting issue then please book a time using the below url. Please use the code “Article33” to get a 33% discount off our tax consultation sessions. http://www.optimiseaccountants.co.uk/financetaxconsultation/ I look forward to hearing from you soon
  16. Are you looking to sell some of your residential property investments? Are you looking to reduce your CGT bill? The problem — 28% CGT is a lot of tax to payI wrote an extensive article about the budget changes and how many residential property investors, especially higher rate taxpayers, have been targeted by George Osborne in the following ways: The reduction of mortgage interest relief to a basic rate taxpayer level of 20% The removal of the 10% wear and tear allowance The new 3% stamp duty land tax (SDLT) surcharge for additional properties There are many other issues identified within the article but the above three “features” can be crushing to the point where you can make a loss on your property portfolio and still pay tax. This, in my opinion, is wrong but we have to work with it or leave the sector. If you are thinking of leaving the residential property investment market then you need to consider capital gains tax (CGT). George Osborne also recently announced that CGT rates will be decreased from 18% to 10% for basic rate taxpayers and from 28% to 18% for higher rate taxpayers. On the face of it, you may think this is good news, but the devil in the detail reveals that George has singled out residential property investors again and stated that these discounts do not apply to them. Therefore residential property investors will still pay 18% CGT if they are basic rate taxpayers and 28% CGT if they are higher rate taxpayers. You could be forgiven for feeling rather paranoid about these tax changes and the way the government seems to be targeting landlords. Don’t forget, however, that each person still gets an £11,100 capital gains exemption for 2016-17. Ways to minimise your CGT liabilityThe below list is based on non-trading assets, i.e. residential property investments. There are other allowances that may be claimed for trading business assets, which I have detailed in another article. Use your spouse’s capital gains exemption and allowances using a deed of trust Spread the property sales over time to utilise your annual capital gains exemptions Contribute towards your pension to get income tax relief to reduce the overall tax burden Invest in Venture Capital Trusts (VCTs) Invest into an Enterprise Investment Scheme (EIS) Invest into a Seed Enterprise Investment Scheme (SEIS) Many property investors do not use their spouse’s capital gains exemptions. You may be in a position where you are a higher rate taxpayer and your spouse either pays no tax at all or is a basic rate taxpayer. As such you could be losing out on their £11,100 capital gains exemption and paying 10% more tax than you need to. There is a way to split the percentage of ownership to ensure that you utilise your personal capital gains exemption while minimising the percentage of CGT payable. I would suggest that you speak with your accountant about this. If you spread your property sales over time then you could take advantage of the £22,200 in capital gains exemptions (assuming you are married) available each year. If you invest the entire gain into one of the last four options then you would be able to mitigate the entire CGT liability, provided you meet the various requirements identified within each type of investment. Please note that I am not suggesting that you invest in any type of investment specifically, rather showing the tax reliefs that may be obtained if you choose to do so. There will be a degree of risk with any type of investment, which is mirrored by the below income tax reliefs. The higher tax relief often relates to the additional risk you take. You should speak with an FCA regulated financial adviser before embarking on any investment. Income tax reliefs for each type of investment In addition to the CGT mitigation, you will also receive income tax relief on the investment that you make as follows: 30% income tax relief for VCT investment up to a maximum investment of £200,000 30% income tax relief for EIS investment up to a maximum investment of £1,000,000 50% income tax relief for SEIS investment up to a maximum investment of £100,000 Please note that pension contributions will also provide you with income tax relief — my previous article provides more details on this. I also wrote a more detailed article on investing in EIS. Next steps — contact us to minimise your CGT liability If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar. Please use the redeem code “Article 33” to get 33% off your next consultation call. Here are some options of how we may help you 1 - Accountancy & Tax support If you are a high rate tax payer then please book a call to discuss how we can help you in regards to accountancy and taxation services. We will describe our services to you but will not provide any tax advice on the call. Book some time with us a time that is convenient for you: http://www.optimiseaccountants.co.uk/accountancytaxservices/ 2 – Tax consultations If you would like to have direct support on a specific tax / accounting issue then please book a time using the below url. Please use the code “article33” to get a 33% discount off our tax consultation sessions. http://www.optimiseaccountants.co.uk/financetaxconsultation/ I look forward to hearing from you soon
  17. Hi All Does anybody know what happens to Capital Gains Tax Liability under the new rules after returning back to the UK ? We have bought several UK BTL properties whilst living overseas. As the new Non Resident CGT rules stated that property values would be re-based for CGT purposes from April 2015 we obtained estate agent valuations on all of them as at that date. My question is.... If we return to the UK without selling, can we continue to use these re-based 2015 values when we sell in the future? I tried to get straight answer from HMRC helpline but response was - 'The rules only apply to non-residents and if you return to the UK, the rules no longer apply'. This does not seem right I would love to hear from anybody who has looked into this further. Thanks Lorna
  18. Do you own assets that will eventually be passed on to your children? Are you worried about inheritance tax? The problem — capital gains tax (CGT) & inheritance tax (IHT) Many parents throughout the UK wish to transfer assets to their children now to avoid inheritance tax (IHT) in the future and we receive many calls from clients and non-clients who have heard about lifetime transfers. Basically, if you transfer assets up to the IHT threshold and survive for seven years after the transfer, then that transfer will not form part of the IHT liability upon your passing. Unfortunately, however, parents still have to pay capital gains tax (CGT) on any transfers made between them and their children, even if the transfer is a gift. HMRC deems that any gifts of assets are liable for CGT at market value. If an asset is valued at £100,000 and is given to a child for no consideration, then the £100,000 is what is used to determine the CGT liability. This causes people a huge headache as they know that their assets may be subject to IHT if they do not act quickly, but even if they do, their assets are subject to CGT. Can you relate to the above? A real life client example — John passing assets to his son James For the purpose of this article we are going to name my client John to protect his identity. John has £1.5m of assets, of which £1m is in residential properties and £500K is the net asset value of his trading business. He wishes to set up his son James (20) in business to give him a head start in life as university is not on the agenda for him. John thinks about transferring all of the residential properties and the business to his son so that he can leave the UK for a sunnier climate. John knows that making such transfers will help him mitigate IHT if he survives for seven years afterwards. At the time of writing the transfer limit was £325,000 and the IHT threshold upon death is also £325,000. This means that James would have to pay 40% tax on any excess over £750,000. Ultimately this would mean selling off some assets. Transfers to mitigate CGT and IHT As we have identified, there are £500,000 nets assets in his business. John can transfer the business to his son and claim gift relief, meaning that John does not pay CGT but his son will have a deemed cost of £0. This means that James will have to pay more CGT in the future — he will pay CGT not only on the increase in value of the business during the time he has owned it, but also the deferred amount due when it was gifted to him. An example of how gift relief works was included in this article. When it comes to the residential properties, John considers a transfer up to the lifetime transfer value of £325,000, half of the residential property value, but then realises he would have to pay CGT upon such a transfer. Remember, however, that John has an annual capital gains exemption of £11,100, which means that any gain below this amount would be CGT-free. John could therefore consider transferring one or two properties to his son per year to take advantage of this allowance. Practical steps you should now take to mitigate IHT and CGT It is one thing to understand the theory but it is another to put it into practice. This is why I have written a step-by-step guide to implementing this strategy: Identify the nets asset value of your trading business assets and transfer those using gift rollover relief Transfer assets over time that are not trading assets to utilise your capital gains exemption
  19. Do you own assets that will eventually be passed on to your children? Are you worried about inheritance tax? The problem — capital gains tax (CGT) & inheritance tax (IHT)Many parents throughout the UK wish to transfer assets to their children now to avoid inheritance tax (IHT) in the future and we receive many calls from clients and non-clients who have heard about lifetime transfers. Basically, if you transfer assets up to the IHT threshold and survive for seven years after the transfer, then that transfer will not form part of the IHT liability upon your passing. Unfortunately, however, parents still have to pay capital gains tax (CGT) on any transfers made between them and their children, even if the transfer is a gift. HMRC deems that any gifts of assets are liable for CGT at market value. If an asset is valued at £100,000 and is given to a child for no consideration, then the £100,000 is what is used to determine the CGT liability. This causes people a huge headache as they know that their assets may be subject to IHT if they do not act quickly, but even if they do, their assets are subject to CGT. Can you relate to the above? A real life client example — John passing assets to his son JamesFor the purpose of this article we are going to name my client John to protect his identity. John has £1.5m of assets, of which £1m is in residential properties and £500K is the net asset value of his trading business. He wishes to set up his son James (20) in business to give him a head start in life as university is not on the agenda for him. John thinks about transferring all of the residential properties and the business to his son so that he can leave the UK for a sunnier climate. John knows that making such transfers will help him mitigate IHT if he survives for seven years afterwards. At the time of writing the transfer limit was £325,000 and the IHT threshold upon death is also £325,000. This means that James would have to pay 40% tax on any excess over £750,000. Ultimately this would mean selling off some assets. Transfers to mitigate CGT and IHTAs we have identified, there are £500,000 nets assets in his business. John can transfer the business to his son and claim gift relief, meaning that John does not pay CGT but his son will have a deemed cost of £0. This means that James will have to pay more CGT in the future — he will pay CGT not only on the increase in value of the business during the time he has owned it, but also the deferred amount due when it was gifted to him. An example of how gift relief works was included in this article. When it comes to the residential properties, John considers a transfer up to the lifetime transfer value of £325,000, half of the residential property value, but then realises he would have to pay CGT upon such a transfer. Remember, however, that John has an annual capital gains exemption of £11,100, which means that any gain below this amount would be CGT-free. John could therefore consider transferring one or two properties to his son per year to take advantage of this allowance. Practical steps you should now take to mitigate IHT and CGTIt is one thing to understand the theory but it is another to put it into practice. This is why I have written a step-by-step guide to implementing this strategy: Identify the nets asset value of your trading business assets and transfer those using gift rollover relief Transfer assets over time that are not trading assets to utilise your capital gains exemption
  20. The problem — 28% CGT is a lot of tax to pay I wrote an extensive article about the budget changes and how many residential property investors, especially higher rate taxpayers, have been targeted by George Osborne in the following ways: The reduction of mortgage interest relief to a basic rate taxpayer level of 20% The removal of the 10% wear and tear allowance The new 3% stamp duty land tax (SDLT) surcharge for additional properties There are many other issues identified within the article but the above three “features” can be crushing to the point where you can make a loss on your property portfolio and still pay tax. This, in my opinion, is wrong but we have to work with it or leave the sector. If you are thinking of leaving the residential property investment market then you need to consider capital gains tax (CGT). George Osborne also recently announced that CGT rates will be decreased from 18% to 10% for basic rate taxpayers and from 28% to 18% for higher rate taxpayers. On the face of it, you may think this is good news, but the devil in the detail reveals that George has singled out residential property investors again and stated that these discounts do not apply to them. Therefore residential property investors will still pay 18% CGT if they are basic rate taxpayers and 28% CGT if they are higher rate taxpayers. You could be forgiven for feeling rather paranoid about these tax changes and the way the government seems to be targeting landlords. Don’t forget, however, that each person still gets an £11,100 capital gains exemption for 2016-17. Ways to minimise your CGT liability The below list is based on non-trading assets, i.e. residential property investments. There are other allowances that may be claimed for trading business assets, which I have detailed in another article. Use your spouse’s capital gains exemption and allowances using a deed of trust Spread the property sales over time to utilise your annual capital gains exemptions Contribute towards your pension to get income tax relief to reduce the overall tax burden Invest in Venture Capital Trusts (VCTs) Invest into an Enterprise Investment Scheme (EIS) Invest into a Seed Enterprise Investment Scheme (SEIS) Many property investors do not use their spouse’s capital gains exemptions. You may be in a position where you are a higher rate taxpayer and your spouse either pays no tax at all or is a basic rate taxpayer. As such you could be losing out on their £11,100 capital gains exemption and paying 10% more tax than you need to. There is a way to split the percentage of ownership to ensure that you utilise your personal capital gains exemption while minimising the percentage of CGT payable. I would suggest that you speak with your accountant about this. If you spread your property sales over time then you could take advantage of the £22,200 in capital gains exemptions (assuming you are married) available each year. If you invest the entire gain into one of the last four options then you would be able to mitigate the entire CGT liability, provided you meet the various requirements identified within each type of investment. Please note that I am not suggesting that you invest in any type of investment specifically, rather showing the tax reliefs that may be obtained if you choose to do so. There will be a degree of risk with any type of investment, which is mirrored by the below income tax reliefs. The higher tax relief often relates to the additional risk you take. You should speak with an FCA regulated financial adviser before embarking on any investment. Income tax reliefs for each type of investment In addition to the CGT mitigation, you will also receive income tax relief on the investment that you make as follows: 30% income tax relief for VCT investment up to a maximum investment of £200,000 30% income tax relief for EIS investment up to a maximum investment of £1,000,000 50% income tax relief for SEIS investment up to a maximum investment of £100,000 Please note that pension contributions will also provide you with income tax relief — my previous article provides more details on this. I also wrote a more detailed article on investing in EIS.
  21. Are you looking to sell a property and are you worried about capital gains tax (CGT)? Was it once your main home and if so, would you move back into the property? The problem — 28% CGT is a lot of tax Given the recent budget changes you may be thinking about selling one or more investment properties. The unfortunate thing is that as property prices increase — if that can be considered unfortunate — then so does the CGT payable when you sell and if you’re a higher rate taxpayer you’ll pay 28% on any gains. Let me first state that each person owning the property will get an annual capital gains exemption of £11,100 for the year 2016-17. If you are married and the property is in one person’s name only, then it is a good idea to use a deed of trust at least a day before the sale so that you can claim two allowances (couples only). If this is applicable to you please read my article on this. I previously wrote an article about Private Residence Relief (PRR), which demonstrated that tax is only chargeable on the periods that you were not living in the property. I also outlined a number of reliefs as follows: 0% tax on the time you lived in the property 0% on the last 18 months of ownership (deemed to have been living there even if rented out) You would also get lettings relief as shown below (the lower of): the amount of PRR already calculated, or £40,000, or the amount of any chargeable gain you make because of the letting (calculated as a fraction of the gain – the fraction being the period of letting/divided by the period of ownership). This will help you to significantly reduce your CGT liability. Example: You bought your house in December 2002 and sold it in December 2015, owning it for 13 years. You lived in the property as your only or main residence from December 2002 to December 2008 (six years). It was then let as residential accommodation from January 2009 to December 2011 (three years) and then empty until sold at a gain of £150,000. You are entitled to PRR for seven-and-a-half years (six years of residence plus the final 18 months) out of 13 years. This part of the gain is £86,538 (7.5/13 x £150,000). Your remaining gain is £63,462. The lowest of the three limits set out above is the gain by reason of the letting £34,615 (3/13 x £150,000) so you are entitled to further letting relief of £34,615. Your chargeable gain will be £28,847. Move back into the property to get additional reliefs You can also reduce your CGT liability if you move back into a property which you previously had as your main home. If you have another dwelling house eligible for relief, for example, a house or flat which you bought or rented as your home while absent, you will need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period of residence at that house. The qualifying periods of absence are: a. absences for whatever reason, totalling not more than three years in all b. absences during which you are in employment and all your duties are carried on outside the UK. The distance from your place of work prevents you living at home, or your employer requires you to work away from home in order to do your job effectively c. absences totalling not more than four years when the distance from your place of work prevents you living at home or your employer requires you to work away from home. You will keep the exemption for absences b. and c. if you cannot return to your house afterwards because your existing job requires you to work away again. The absences at b. and c. will also apply if the employment was that of your spouse or civil partner. Example: You bought a house in 1984 and used it as your only or main residence. In 1985 your employer required you to work abroad and you did not come back to the house until 1990. You lived in the house again as your only or main residence until you sold it in 2013. You are entitled to full relief.
  22. Are you looking to sell a property and are you worried about capital gains tax (CGT)? Was it once your main home and if so, would you move back into the property? The problem — 28% CGT is a lot of taxGiven the recent budget changes you may be thinking about selling one or more investment properties. The unfortunate thing is that as property prices increase — if that can be considered unfortunate — then so does the CGT payable when you sell and if you’re a higher rate taxpayer you’ll pay 28% on any gains. Let me first state that each person owning the property will get an annual capital gains exemption of £11,100 for the year 2016-17. If you are married and the property is in one person’s name only, then it is a good idea to use a deed of trust at least a day before the sale so that you can claim two allowances (couples only). If this is applicable to you please read my article on this. I previously wrote an article about Private Residence Relief (PRR), which demonstrated that tax is only chargeable on the periods that you were not living in the property. I also outlined a number of reliefs as follows: 0% tax on the time you lived in the property 0% on the last 18 months of ownership (deemed to have been living there even if rented out) You would also get lettings relief as shown below (the lower of): the amount of PRR already calculated, or £40,000, or the amount of any chargeable gain you make because of the letting (calculated as a fraction of the gain – the fraction being the period of letting/divided by the period of ownership). This will help you to significantly reduce your CGT liability. Example: You bought your house in December 2002 and sold it in December 2015, owning it for 13 years. You lived in the property as your only or main residence from December 2002 to December 2008 (six years). It was then let as residential accommodation from January 2009 to December 2011 (three years) and then empty until sold at a gain of £150,000. You are entitled to PRR for seven-and-a-half years (six years of residence plus the final 18 months) out of 13 years. This part of the gain is £86,538 (7.5/13 x £150,000). Your remaining gain is £63,462. The lowest of the three limits set out above is the gain by reason of the letting £34,615 (3/13 x £150,000) so you are entitled to further letting relief of £34,615. Your chargeable gain will be £28,847. Move back into the property to get additional reliefsYou can also reduce your CGT liability if you move back into a property which you previously had as your main home. If you have another dwelling house eligible for relief, for example, a house or flat which you bought or rented as your home while absent, you will need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period of residence at that house. The qualifying periods of absence are: a. absences for whatever reason, totalling not more than three years in all b. absences during which you are in employment and all your duties are carried on outside the UK. The distance from your place of work prevents you living at home, or your employer requires you to work away from home in order to do your job effectively c. absences totalling not more than four years when the distance from your place of work prevents you living at home or your employer requires you to work away from home. You will keep the exemption for absences b. and c. if you cannot return to your house afterwards because your existing job requires you to work away again. The absences at b. and c. will also apply if the employment was that of your spouse or civil partner. Example: You bought a house in 1984 and used it as your only or main residence. In 1985 your employer required you to work abroad and you did not come back to the house until 1990. You lived in the house again as your only or main residence until you sold it in 2013. You are entitled to full relief. Next steps — contact us to minimise your CGT liabilityIf you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar. Please use the redeem code “Article 33” to get 33% off your next consultation call. If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.
  23. Apologies for posting more than one post on a similar issue. But each are slightly different and situations I am currently faced with. My family home which was lived in as a residential property for 24 years. Then it has been rented out for the next 6 years. It was bought for approximately £60,000 and is now worth approximately £450,000. We are now looking to sell the property. We are considering our options, but need to consider the following: How much capital gains would we have to pay? Would the 24years as a residential property affect this figure at all? If we were to move back in, how long would we have to live there before it became classed as residential property, and not have to pay CGT? Thanks in advance for any help/ information.
  24. Folks, For non residents the government has announced that Capital Gains Tax (CGT) will now be payable on UK property sold by overseas residents and offshore companies. The legislation requires the payment of CGT on any gain from 6th April 2015 until the date of disposal of the property. However, the CGT is due only on gains in value accrued from 6th April 2015. Apparently it is recommended to obtain a valuation on the property before 6th April 2015 (true?) Now I need some advice to make sure the surveyors is fully accredited and the valuation will be accepted by HMRC. Can anyone suggest an accredited surveyor firm? I heard about "RICS registered surveyors" and "RICS Red Book Valuation Certificate" that is apparently accepted by HMRC. Any info on that? Thanks Antoine
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