Save Tax on Selling Property
By Ian MarlowIncreasingly, people have more than one property and this
property is often held jointly either because it has been left to children in a will or purchased jointly in
order to receive rental income. In order to avoid unexpected tax bills and to plan effectively for minimising
the tax liability before the sale goes ahead, it is important to know how much tax you might be liable to pay
when you sell a property? Talk about it sooner rather than later in order to avoid a difficult financial
situation being suddenly thrust upon you.
Of course if the property is your primary residence then you will be entitled to claim Principal Private
Residence Relief (PPR) which means there will be no capital gains tax (CGT) when the property is sold. Otherwise,
it is important to know who owns what before disposing of an asset and it is not always the person you think who
owns the property and therefore has to pay CGT on the disposal.
In order to decide that you will need to consider who profits from the sale of the property. In general the tax
liability follows the ownership of the asset, and so the owner has to account for any gain on the disposal of
property and pay tax accordingly. It's not just a house that may be caught by the CGT rules either. Land is
included as are houseboats and caravans (unless let as part of, say, the trade of a caravan park).
There are two types of property owner in UK law. The first is the legal owner of the property. This is the
commonsense understanding of ownership i.e. the person who holds title to the land as can be found at the Land
Registry. The second is any person with a financial interest in the property which gives them a share in the
disposal proceeds. This might be an active interest such as living in the house as your home or a passive interest
like providing a deposit to buy a property with an agreement that the deposit will be repaid out of the proceeds of
the eventual sale. Sometimes, the legal and beneficial owners are exactly the same people such as a husband and
wife who jointly own their home.
So, will everyone selling a second home be subject to CGT? If you live in the UK, the answer is generally yes,
wherever the property is. That is because UK residents are taxed on their worldwide income. There may be an
exception if you are not domiciled in the UK and do not remit the payment here, but the general rule remains that
your worldwide income is taxed and you have to report this on a self assessment tax return. If you are both
resident and domiciled in the UK, it does not matter where the sale proceeds are kept. However, if you have left
the UK and some years later sell a property, then you may legitimately avoid paying CGT on the sale but will have a
potential tax liability to report in the country in which you currently reside.
There is though plenty of scope for tax saving when selling a property. Transfers between spouses or civil
partners, electing to make the second property your main residence (provided this can be supported by fact) and the
timing of the sale can all potentially save significant amounts in tax. Advance planning is the key and it can be
very effective to take some quite simple steps. Waiting until the sale is completed simply won't work however. And
the rules are complex and regularly change so with CGT above all tax issues, employing a tax advisor is likely to
be cost efficient. If you are thinking of selling a second home, then make sure you get some good professional