Property disposals and CGT: tips to reduce your client’s liability

New 30-day Capital Gains Tax deadline set to come into effect

Understanding Capital Gains Tax (CGT), specifically what your liability is, is essential when considering options for selling a buy-to-let property.

If you are currently renting out a second property, or have a portfolio of properties, being aware of your CGT liability will likely influence a few key financial decisions.

It is worth mentioning that under CGT regulations you won’t pay capital gains tax on your main property.

We’ll be discussing a selection of tips for reducing your CGT bill.

How do I calculate my CGT liability?

Calculating your CGT liability is relatively straightforward.

Deduct the purchase price from the sales price to get your ‘gains’ on the sale of the property.

It is worth noting that you can also include legitimate costs in this equation.

For example, stamp duty and legal fees as well as costs incurred by making improvements to the property should all be taken into consideration.

Tips for reducing your CGT liability on a buy-to-let property

Consider your tax-free allowance

Make sure you use your £12,300 tax-free allowance as this cannot be carried forward from one year to the next.

If you have already made use of your tax-free allowance, it is worth considering delaying the sale of a property until the next tax year to make use of that year’s tax-free amount.

Consider a joint ownership agreement with a spouse

By having joint ownership of a property, you can combine both your tax-free allowances to a total of £24,600.

If your spouse also happens to be in a lower tax band, this will influence your final bill.

Consider including legitimate costs

As we discussed above, there are certain costs that you can factor into your capital gains bill.

The three main types of cost that can be factored in are:

  • Incidental Costs: including solicitors fees, surveyors’ fees, and estate agent fees
  • Stamp Duty Land Tax (SDLT)
  • Improvement Work Costs: these are classified as work that enhances the asset

Consider the time spent in the property

It’s worth remembering that any time spent living in the property influences your CGT liability.

For example, if you have been liable to pay CGT for 4 years, but have lived in the property for 2 years, you are entitled to take the time spent in the property off your final CGT calculation.

In the example above you would be taking 50 percent off the bill. Having your finger on the pulse of your finances has never been more important.

At MGI Midgley Snelling LLP we are able to explain CGT in no-nonsense terms, to your clients and we can help them sort out their tax affairs.  To find out more, please contact us.

Posted in Legal Bulletin.