Property market uncertainty… Thinking of selling?

There seems to be a lot of uncertainty in the property market at the moment; prices in the capital have recorded the biggest price falls in a decade but lenders are reporting a shortage of houses and rising prices elsewhere. Nobody seems quite sure what to expect next.

From the government’s perspective some of the heat has been intentionally taken out of the property market; recent tax changes for landlords have been implemented which were designed to make starting or growing a property portfolio less favourable (more info in our earlier blogs here and here). As a result, purchases by buy-to-let investors have been slowing.

Despite all this uncertainty, whether there will be any tax triggered by a sale is one question that property owners can have answered with confidence.

Capital Gains Tax to pay?

However, capital gains tax can be complex and the amount of tax to pay depends on much more than just how much money has been made. Consider the question:

“I have a residential rental property I bought ten years ago for £200,000 and I think it’s worth £500,000 now. How much tax would I have to pay if I sell it?”

This perhaps seems like it should have one answer. But it very much depends on the details.

If that property was jointly owned by a couple who had lived in the it for the first few years after buying it (and had maximum availability of tax bands and allowances) then the resulting capital gain tax bill from this sale might be around £11,000 (an effective tax rate of less than 4% on the £300,000 gain). It’s quite possible there might be no tax to pay at all, depending on the exact figures and dates.

On the other hand, were the situation less favourable the maximum capital gains tax bill here could be up to £84,000 (a rate of 28%). As the contrasting results of this example illustrate, the key is to ensure that all the tax reliefs and allowances have been considered and claimed.

Tax bills will need to be paid earlier

Additionally, there is a proposed change on the horizon for when capital gains tax bills are to be paid.

At the moment, capital gains tax is payable on the well known usual 31 January tax date. So for a property sale in May 2017 any capital gains tax would be due 31 January 2019. However from sales from 6 April 2019 onwards it’s proposed that a payment for the tax will need to be made to HMRC within 30 days from the sale. Details are yet to be finalised, but it’s worth noting for those deciding whether to sell now or further in the future.
If you’re thinking about making a property sale, and want to know where you would stand in terms of capital gains tax, or have any other property related tax queries please contact us at – 01904 464 100.