The property market is a veritable minefield of costs and expenditures, and when tax bills are added as well, it can drive a person to tears. But although tax is inescapable in one form or another, there are professionals at hand to advise you how to reduce it to more palatable levels; they are the Tax and Trust Specialists.
The area of property taxation is a highly specialised one, and this article is not a complete guide to taxes and trusts. Instead it provides a general assessment of what you may be liable to pay in tax on your property, and how specialists can help you, in order to start you off in the right direction.
What Taxes are involved?
The taxes you can expect to encounter when buying and selling property affect everyone:
Buying your home
1) Stamp Duty Land Tax: Previously known as Stamp Duty, is an amount you will have to pay if you buy a property worth £125,000 and over. The percentage you will have to pay increases, depending on which bracket your property falls into:Purchase Price of Residential Property Rate of Stamp Duty Land Tax (% of Purchase Price)
- £0 - £125,000: 0%
- £125,001 - £250,000: 2%
- £250,001 - £925,000: 5%
- £925,001 - £1.5 million: 10%
- Over £1.5 million: 12%
Selling your home
1)Capital Gains Tax: This tax is only applicable to you if you own a second home. The thinking is that you have bought more assets with the intention of making a profit, and therefore any gains you do make on a property investment should be taxed, when that property is sold.Similarly to other forms of tax, the amount of CGT you pay depends on your overall income. At the end of the tax year, any gains you made are added to your taxable income. The gains are then charged to CGT at the following rates (2006-2007 tax year):
- 10 per cent where they fall below £2,150
- 20 per cent where they fall between £2,151 and £33,300
- 40 per cent where they fall above £33,301+
2)Inheritance Tax: This is paid on your ‘estate’, which includes everything you own when you die, such as property, investments, and possessions. However, it does not apply to everyone. Your estate must initially be worth more than the £285,000 threshold for it to be taxed. However if your estate is left to your spouse or civil partner, then this tax does not apply, even if it is above this threshold.
It is possible to reduce all three of these types of tax with the help of a tax specialist
Another way of avoiding some tax charges is to put your assets into trusts, but this is a tricky path to navigate. Trusts have long been a loophole for the cost-conscious property investor, but professional advice is recommended.