Date12 May 2021
CategoryTax, Private Client
The property market in the UK has recently been described as “on the boil”. Prices are rising and offers are regularly being made on properties which are comfortably above the asking prices. This is in no small part due to the extension of the Stamp Duty Land Tax (SDLT) holiday announced in the March budget, but these factors also offer opportunities to savvy buy-to-let investors.
Many buy-to-let investors entered the market many years ago and have experienced significant capital growth on their property portfolios. Unsurprisingly, many landlords are deciding that now is the ideal time to cash-in on this growth and are exiting the market at a time when prices and demand are high, maximising their returns and ensuring a quick transaction to release their capital. As with most things, there is of course a flip side to the coin. In the case of selling an investment property, this comes in the form of Capital Gains Tax.
Subject to any reliefs, Capital Gains Tax (CGT) is payable on the excess of sales proceeds over the original property cost (plus any capital improvements costs incurred by the seller), with allowance being given for the legal fees associated with the purchase and sale. It follows that high property prices will inevitably lead to an increase in the amount of tax payable by individuals on the sale of investment properties, and this makes tax planning in advance an essential part of the conveyancing process.
There are particular opportunities and reliefs available to married couples where the property is owned solely in one name, or where the investment property was previously occupied by the owner as their main residence. The simple transfer of part of a property to a spouse prior to sale to utilise their annual CGT exemption for example could save £3,444 alone. This saving could increase further still if there was a difference in the tax rates suffered by the individuals in question.
Of course, not everyone wants to sell their property. The return on investment for longstanding landlords who bought at a lower price is also high, and with many relying on the rental income as a way of funding their retirement, maximising the income received (after tax) is an essential objective.
Again, opportunities exist in the current tax landscape to minimise the Income Tax payable on the rental income. In the most basic scenario, transferring an element of the property to a spouse can ensure that personal allowances are fully utilised and that tax is paid at the lowest available rate, minimising the household liability to tax. Even with the simplest planning it can be possible to create annual recurring tax savings that reach thousands of pounds.
As ever, it is important to be armed with full and accurate information before making any decisions, and transaction costs must be considered prior to any action being taken. That said, with the temporary Stamp Duty Land Tax threshold and existing Capital Gains Tax reliefs available, if you act now the transactional tax cost between spouses may well be £Nil.
Perhaps now is the best time to contact your tax adviser and get your house in order.
Want to know more?