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[r16chh]

Hi all,

Just started out in the buy2let game with my tenant moving in after xmas, what I would like to know is, what are the tax implications when it is time to sell as this is not my main residence.

Thanks

Rich

[Reg]

When selling a property that isn't your main residence than you will be accountable by the Inland Reveune to capital gains tax. A maximum of 40% on your profit.

You have an annual captial gains tax allowance of over £8,000 a year, which you can immediately offset each year against any profit your property gains by. So if your property rose in value by £80,000 in ten years and you sell it, you would not be liable to any tax at all.

This capital gains tax (CGT) profit on your property is the raw profit after all legitamate costs you have had to fork out on the property are deducted.

You can offset stamp duty and legal fees (when you first bought the property) against your CGT bill, you can also offset the cost of a new kitchen and bethroom and major construction / improvement work (you have to keep all the receipts to back up your claim).

There are also extra ways of reducing your tax burden. The biggest one is tax taper relief (keeping the property for more than three years). With tax taper relief, the level of tax that you are liable for reduces each year AFTER the third year up until the maximum tax relief (reducing down to 20%) when owning the property for ten years.

As well as taper relief, if you live and prove you lived in the property mentioned (it only needs to be for a short amount of time, pay council tax) then you get even more extra tax relief when you sell the property.

If you play your cards right, you shouldn't have to pay any / much CGT at all !

[r16chh]

Thanks for that, didn`t know your captial gains tax allowance was £8,000 a year, and could be added together at the end.

Does that go for my wife also, so it is double, £16,000 a year.

[Reg]

YES, if the property is in both of your names, then you get double the capital gains tax allowance.

The actual allowance for an individual person in 2006/07 is £8,800. So this tax year, u and ur wife's total capital gains tax allowance is £17,600.

This allowance normally goes up slightly each year.

Also to note, selling shares and other business assets at a profit are also liable for capital gains tax.

[plym77]

Hi Rich and Reg

I am sorry to disagree with Reg, but I am a Chartered Tax Adviser and specialist in property taxation. My apologies for not having replied sooner, I have been away for a few days.

Your Capital Gains Tax Annual Exemption (of currently £8,800 per annum, per person) CANNOT be added together each year as suggested. When you make a sale, you only have the un-used CGT Annual Exemption of that year which can be used, you cannot accumulate them over a number of years.

It is sometimes possible to utilise your Annual Exemption each year by implementing a more complicated structure, and gradually moving a property out of personal names and into a Trust, thus triggering the use of a CGT annual exemption each year. This method has benefits but also is complicated and can only be implemented by obtaining professional advice as if it is done incorrectly, it could fail for tax purposes.

There is a relief that started to build up after ownership of three years, called taper relief. This effectively reduces the calculated gain (before annual exemptions) by between 5% and 40%, depending on how long you have owned the property.

Reg is however right that where a property is in joint names with your wife, you could utilise two annual exemptions. However, if the property is not in joint names already, you do not need to worry about this for CGT purposes as married couples can make 'exempt CGT transfers' to each other pre-exchange to sale. However, you may wish to consider some sort of split for income tax purposes - which if not already in place, can be done by Declaration of Trust.

I hope this is useful, if you have any further queries, please shout

Kind regards

Sherena

[Matthew]

Ah, I was a bit surprised by Reg's comments as when I looked into it I certainly thought you only got the exemption on the year of sale.

Am I right in thinking that when I olope to Australia, after 4 years I will be exempt from Capital Gains Tax?

Also, will the Aussies try to tax me on it?

Thanks in advance,

Mat.

[plym77]

Hi Matt

There are some rules with disposing of assets while you are abroad, rather than me type out the scenarios here, visit the following link and if any of that isn't clear, then shout and I will help where I can.

http://www.hmrc.gov.uk/cnr/faqs_capgains.htm#cg4

I am not sure of the tax law in Australia, and would suggest that you look up the Australian Tax Office website, however, I do know that the UK have a double taxation treaty with Oz and so if you did end up paying tax, some sort of credit for tax paid in one country should be available in the other.

Regards

Sherena

[Nighow]

Hi all,

Just started out in the buy2let game with my tenant moving in after xmas, what I would like to know is, what are the tax implications when it is time to sell as this is not my main residence.

Thanks

Rich