Propietarios involuntarios: cuidado con la trampa del impuesto sobre las ganancias de capital - Impuesto sobre propietarios en el Reino Unido

If you’ve found yourself with a second property on your hands, through a change in family circumstance or through inheritance, you might be tempted to sell and enjoy an immediate cash boost. I understand the instinct but would strongly urge you to explore the possibility of becoming a residential landlord first – and to look closely at how much tax you might end up paying on such a sale. And, thanks to changes to tax law that apply from April 2020, you also have to be prepared to pay that tax bill within 30 days of completing the sale. The question you need to ask yourself is whether you’d rather derive long-term income from a rental property – and maintain ownership of that property as it potentially increases even further in value – or make a short-term gain. There may well be good reasons why the latter is the right choice for you and, obviously, we can’t make the decision for you. What we can do is set out the facts and provide some examples that will at least help you think it through before making your choice. Equally, you might prefer to have a conversation about your particular circumstances with someone who knows property tax. In which case, contact us today and let’s start talking. What is capital gains tax? Capital gains tax, often abbreviated to CGT, is a tax on the profit you make when you ‘dispose of’ an asset, such as a flat or house, that has increased in value by more than £12,300 in 2020/21. This tax-free allowance doubles for spouses and civil partners. You’re taxed on the gain, not on the total amount of money you receive. I say ‘dispose of’ because that’s the technical term used by HMRC. The reason they don’t just say ‘sell’, which is what it will be in most cases, is because CGT also applies to gifts, transfers, swaps or compensation payouts such as, for example, insurance. Higher and additional-rate taxpayers face a 28% CGT on the disposal of residential property while for basic-rate taxpayers it’s either 18% or 28%, depending on the gain and various other factors. There are exceptions to CGT. Thinking of property in particular, you don’t have to pay it when you sell your ‘main residence’ – that is, the house you actually live in. But let’s say you inherit a £500,000 property on the death of a relative. The estate will probably be liable for inheritance tax – so you’ve already been taxed once. You then hold on to it for a year or two before deciding to sell, in which time its market value has increased by a further £50,000. Minus various fees, your gain works out at £44,000 and so you find yourself liable for around £9,000 in CGT. A classic example of a tax trap waiting to be stumbled into by the unwary. It could be more or could be less, or course, depending on a whole range of factors from your personal income tax band to how much you spent renovating the property. The point is that doing nothing can cost you money – and we’re not talking peanuts. What changed in April 2020? Under the old rules, UK residents reported gains made on the disposal of UK residential properties as part of their annual self-assessment tax return. They then paid any tax due on 31st January as part of their overall tax bill. From 6th April 2020, though, UK residents have been required to report CGT liability immediately on the disposal of a residential property and pay the bill within 30 days of the sale going through. This brings UK resident landlords in line with the way non-resident landlords have had to report since 2015. The mechanics of the return are interesting, too. In line with a general push to get people recording and reporting everything online, you have to use HMRC’s real-time capital gains portal. Then, a bit annoyingly, you still have to report the sale on your end-of-year tax return, when you’ll be awarded for tax already paid. Making letting more attractive Even in the challenging climate for landlords created by COVID-19, this change to how CGT is implemented might make you consider letting as an alternative to selling. At UK Landlord Tax, we’re enthusiastic about property and would always encourage those who are wary of letting to resist rejecting it out of hand. The paperwork, the pressure of fitting out a property in line with statutory requirements and the occasional difficulties of dealing with tenants shouldn’t put you off. At a time when interest rates are at a historic low, and look set to stay that way for the time being, property continues to be an investment worth considering. And landlords benefit from a steady, relatively passive income. More change to come? Having held a Budget on 11th March, and a ‘summer economic update’ on 8th July, the Chancellor, Rishi Sunak, sprung another lot of surprise announcements on 14th July, just before Parliament went into recess. Among them was the announcement of a review of capital gains tax. In a letter to the Office of Tax Simplification (OTS) he wrote: “I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible. “In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.” With the Government keen to claw back money to cover the cost of its generous coronavirus business support schemes, it’s not likely this review will lead to a reduction in CGT. Talk to us on 0800 907 8633, via tax@fixedfeetr.com or via our online contact form about managing your capital gains tax bill. If you found this article informative then why not read our closely related article on the capital gains tax review?

Propietarios accidentales: tengan cuidado con la trampa del impuesto sobre las ganancias de capital

¿Qué es el impuesto sobre las ganancias de capital?

¿Qué cambió en abril de 2020?

Hacer que el alquiler sea más atractivo

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