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 property, not on the entire amount you receive from the sale.
James Clerkin, Partner at MGI Midgley Snelling LLP, says, “When you’re selling a property or a property portfolio, navigating CGT 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 stand as follows:
- 18 per cent (10 per cent for commercial property) to the extent that your capital gain when added to your annual income is below £50,270.
- 24 per cent (20 per cent for commercial property) to the extent that your capital gain when added to 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 due on the disposal of property must be filed and paid within 60 days following the completion date of the disposal.
What are the benefits of incorporating a 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.
James says, “Incorporating your property portfolio can lead to substantial tax savings and enhanced liability protection, making it a wise move for long-term investors.”
If you’re considering incorporating a property portfolio into a limited company, there are a few things you need to know.
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 and more tax-efficient remuneration planning.
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.
Disadvantages to incorporating
In addition to the benefits, there are also downsides to incorporating a property portfolio you’ll need to consider.
Sometimes the costs involved can outweigh savings.
There are various administrative costs of setting up and running a limited company.
So, 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.
If you transfer your admin responsibilities to an outsourced accountant, you will be subject to additional costs.
When incorporating, you may be liable for Stamp Duty Land Tax (SDLT) and CGT based on your property’s current market value.
Although Incorporation Relief can postpone these costs, 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.
For advice on Capital Gains Tax and your liabilities, please get in touch with our team today.