When you are selling your property you just do not want to get rid of it, you want to maximize your profits and at the same time you want to minimize the taxes you pay on them. CGT is the capital gains tax which you pay on your property which is not your main home. You will pay CGT if you own a property which is not your main home and you bought with the intention of selling it and or you have rented the property.
If you are a landlord owning one or more properties and you have incorporated your business then you don't pay CGT on the gains instead you pay corporation tax on it.
But if you have rented your property and you are paying income tax on the rental income, you will be paying capital gains tax on all the gains you will make as a result of the sales. IF your annual income falls in the basic rate band you will be paying income tax 20% and CGT at 18% on the residential property and if your income falls in the higher rate tax band your income tax will be 40% and the CGT will be 28%. Make sure that you keep in mind that you will have to pay these taxes and calculate the cash that will be left with you after paying these taxes so that you don't run out of cash if you plan to make any investments or you have to pay some bills.
Look at the following ways in which you can save some money by reducing your tax bills:
1. Making use of your CGT annual allowance:you
In the tax year 2022-2023 every individual is given a tax free CGT allowance of £12 300. This means that you can make a gain on your chargeable assets without paying any taxes on it. This allowance cannot be carried forward, so it is wise to use it every year and make tax free sales. If you have already used this allowance in a particular year it would be wise to delay the sales to the next year so you can make use of the allowance.
2. Share the property with your spouse:
If you own the property jointly with your spouse this can double your tax free CGT allowance. This means that when you sell the property you can make a gain of £24 600 without having to pay CGT on it. If you don't have joint ownership of the property with your spouse you can transfer all or part of the property to your spouse. You don't pay any CGT on the transfer of your property to the spouse.
3. Transfer the property to your spouse:
You can transfer the property to your spouse if your spouse falls in the lower income tax band, this way you can pay CGT at the lower rate on the sale of the property
4. Deduct your costs:
When you are calculating the chargeable gain don't forget to deduct all the costs incurred. You should deduct all the legal costs that were incurred when buying and selling the property, the stamp duty land tax that you paid when you were buying the property and the costs incurred that increased the value of the property,
If you want a property tax accountant, please don't hesitate to contact Taxaccolega. We are accountants in croydon and can do your income tax, corporation tax, inheritance tax. Call us at 020 8127 0728