Firstly property returns are made by way of income (rentals and trading) and/or capital gains. This article will focus on the capital gains considerations for an individual residential property investor, post 5th April 2018.
Property gains are calculated by deducting the capital costs from the value of the disposal. The disposal is normally by sale or transfer; net gains will be after further deduction of capital losses and the annual exemption.
What you need to know
Above all net capital gains will be taxed at the rate of 18% (basic rate) or 28% (higher rate). The main relief’s, apart from capital losses and the annual exemption, are the principal private relief (PPR); letting relief (gains up to £40,000 tax free); transfers to a trust, non-residence and death of the individual.
PPR covers the period during which the property is an individual’s actual or deemed main residence. Plus their last 18 months of ownership, and applies to the property, garden and grounds. The PPR election can be made selectively and retrospectively.
Transfers into a trust attract no capital gains tax liability. Transfers in excess of £325,000 during the last seven years of an individual’s life will be charged to IHT at 20%. Therefore if the individual dies within seven years of the transfer additional IHT may be due.
An individual who becomes non UK resident, and makes any capital gains in the tax year following the year of departure, and does not become UK resident within five years will not be liable.
It is possible with careful planning to significantly mitigate or eliminate any potential liability. As an investor you need to consider your strategy in the context of your current and future aspirations.
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