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The complexities of property tax – what you need to know

Property tax isn’t just a numbers game—it’s a crucial part of owning real estate.

Whether you’re managing rental properties or building your investment portfolio, understanding the ins and outs of property tax is essential.

Selling your property business? – Here’s what you need to know about Capital Gains Tax

Capital Gains Tax (CGT) is the tax you pay on the profit you make from selling your business, not on the entire amount you receive from the sale.

Sam Bacall, Director, FFT, says, “When you’re selling a property portfolio, navigating Capital Gains Tax requires careful planning to ensure you’re not overburdened by taxes on your hard-earned profits.

“It’s not just about what you receive from the sale – it’s about maximising what you keep.”

Currently, CGT rates for residential property stand as follows:

  • 18 per cent on the entire capital gain if your total annual income is below £50,270.
  • 24 per cent for residential property (reduced from 28 per cent in the Spring Budget) on the entire capital gain if your total annual income exceeds the £50,270 threshold.

The start of the 2024/25 financial year saw the Capital Gains Tax (CGT) Annual Exempt Amount drop to a historic low of £3,000, down from £6,000 the previous year. 

CGT on disposal of property must be filed and paid within 60 days following the completion date of the disposal.

Should you incorporate your property portfolio?

Incorporating your property portfolio into a company structure can offer you significant tax advantages, mainly because of how taxes differ between limited companies and individual landlords.

Sam says, “Incorporating your property portfolio can lead to substantial tax savings and enhanced liability protection, making it a wise move for some long-term investors.”

Owning your portfolio through a company, rather than personally, can offer significant tax reliefs – including the ability to claim a 100 per cent relief on mortgage interest payments. 

Rather than paying Income Tax or CGT on your profits and gains, you will be charged Corporation Tax instead. This is typically a lower rate, meaning you get to retain more of your profits.

Additional benefits include:

  • More tax-efficient remuneration planning
  • Potentially reduced tax liabilities on property sales
  • Effective strategies for pension planning
  • Better liability protection for the business owner, separating personal assets from business risks.

However, this strategy isn’t for everyone and those who own just a few properties might actually see their taxes and expenses rise rather than fall.

For example, there are various administrative costs of setting up and running a limited company.

In addition to needing to pay these costs, you will also be spending time and effort filing yearly accounts, Companies House statements and Company Tax Returns, among others.

When incorporating, you’ll also be liable for Stamp Duty Land Tax (SDLT) and CGT based on your property’s current market value.

Limited companies, for example, must pay a three per cent surcharge on SDLT for residential properties.

Sam says: “Although Incorporation Relief can postpone the CGT, landlords with fewer properties may not meet the criteria to be considered a business, significantly raising the initial expense of transferring assets to the company”

It’s best to look at incorporation on a case-by-case basis and discuss the issue with your accountant because it’s not always the most advantageous route.

We’ll be able to determine if this is the best option for you, so please feel free to get in touch with one of our team.

For advice on Capital Gains Tax and your liabilities, please contact our team today.

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