Sky News recently reported the Coalition Government is thinking of applying capital gains tax for foreign investors buying property based in the UK. George Osborne announced that the Treasury is working with HMRC to device a scheme that is essentially designed to bring the taxation of overseas investors in line with UK landlords and small businesses. So what will this mean for anybody thinking of buying property in the UK?
You are obliged to pay capital gains tax when you sell or dispose of business assets such as shares, land, buildings, business franchise, fixtures and fittings or the reputation of a business. These profits must be declared on your Self Assessment Tax Return (SATR). Capital gains tax is only charged against profit margins and not the actual amount of the sale.
Declaring profits for disclosure of capital gains tax
If you owe capital gains tax and do not declare it on your SATR you will incur a fine of at least £100. The section you need to complete on your tax return is form SA108. If you are part of a partnership you must also complete the Partnership Disposal of Chargeable Assets on form SA803. A calculation of each gain or loss should be included with every form.
To calculate your capital gains tax check each asset separately and make a note of the gains and losses. Then add the total amount of gains only. Then do the same for losses. You should have two figures. Take the losses from the gains and deduct your tax-free allowance, either entrepreneur´s relief, business roll-over relief or gift hold over relief.
Let´s take a look at that calculation in more detail:
You buy your business for £100,000 and spend another £20,000 renovating the property and installing furniture, shelves, etc. You then sell your business property together with its fixtures and fittings for £300,000. Deduct the spend of £120,000 from your total profit of £300,000 and apply your tax relief to the remaining £180,000. So if you are an entrepreneur you only pay 10 per cent in capital gains tax thus owe HMRC £18,000. If you jointly share assets with a partner you work out tax liabilities on 50 per cent of your combined total profit, i.e £90,000.
You can also deduct other costs such as fees for professional services, estate agents, solicitors together with stamp duty and VAT – unless you reclaim the VAT in the VAT section of your SATR. You can only claim it once so be careful where you choose deduct it. Make a mistake and you could incur a £100 penalty fine.
There are more complicated rules and regulations for firms that fall into certain categories such as businesses that began trading before 1982, so if you need any advice or assistant with capital gains tax and calculating your liabilities contact Taxaccolega, a low fixed fee accountant in London, on 08000 235 234 or email firstname.lastname@example.org and speak with one of our friendly and knowledgeable accountants.