Our Tax Guide
For buying, selling and renting property
How we can help
When you buy or sell your home, holiday home or buy to let property a charge to tax may arise.
It is important to seek advice and be aware of any liabilities when planning for a move, rather than be caught out by an unexpected tax bill. We’ve outlined below situations to be aware of where there are tax implications and some common examples of situations where Capital Gains Tax may be payable on the disposal of UK residential property can be found here.
You’ll find information in the sections below around tax considerations when buying, selling or renting a property.
Tax when you buy your property
Land and Buildings Transaction Tax (LBTT) is payable when you buy a house in Scotland for £145,000 or more. Tax is charged on a progressive scale with rates rising to 12% on purchase prices over £750,000.
Reliefs may be available if you are a first time buyer or are buying more than one dwelling from the same seller.
Additional Dwelling Supplement (ADS) is charged when you buy an additional dwelling worth £40,000 or more. The charge which is 4% of the purchase price will apply unless you are replacing your main residence. ADS will be payable if you buy a new home before selling your current home but may be repaid if you sell your current home within 18 months.
The rules are not simple and you may face an unexpected charge to ADS.
Tax when you sell your home
Usually when you sell your family home or main residence you do not pay Capital Gains Tax (CGT). However, if any of the following apply you may need to pay CGT on all or part of any gain if :
- You have more than one home e.g. a city flat and a country house
- You have not always lived in the property
- You have let your property at any time
- You have used part of the property exclusively for business purpose
- You bought additional land to extend your garden or there are large gardens in relation to the house
Spouses or civil partners can only have one main residence between them at any time. What is your main residence is a question of fact unless you declare to HMRC within two years of acquiring another property, which one is to be regarded as your main residence.
From 6 April 2020, if your home has not always been your main residence and CGT is due on the disposal a return must be filed with HMRC and the tax paid within 30 days of disposal where completion is before 27 October 2021 and within 60 days where completion is after 27 October 2021.
Tax when you sell a rental property
When you sell a buy to let property you will pay CGT on any increase in value. Expenditure such as legal fees on purchase and sale, LBTT and the cost of improvements may be deducted although the amount required to repay a mortgage can not be deducted.
The rate of tax on the gain may be as high as 28% although each individual has an annual exemption. This is the amount of gains that can be realised in a tax year without incurring liability to tax.
Prior to selling a property it is advisable to calculate what your gain may be and if any planning can be undertaken to reduce the CGT payable.
From 6 April 2020, where CGT is due on the disposal a return must be filed with HMRC and the tax paid within 30 days of disposal where completion is before 27 October 2021 and within 60 days where completion is after 27 October 2021.
Tax on rental income
The rent you receive is taxable and you should notify HMRC if your rental income is between £1,000 and £2,500 a year. You must complete a tax return if your income is £10,000 or more before allowable expenses or between £2,500 and £9,999 after allowable expenses.
You can deduct expenses incurred on the day to day running of the property such as letting agent’s fees, utility bills and insurance. The cost of repairs are allowable but not if the work done has moved beyond repairs and is instead improvements or extensions which increase the value of the property. It can be difficult to identify what is allowable and it is an area which HMRC may enquire into.
From 6 April 2020 relief for mortgage interest paid is restricted to the basic rate of income tax and is given as a reduction in tax liability rather than a deduction from rental income.
Spouses and civil partners who buy a property in joint names will be taxed on an equal share of the rental income. If one spouse pays tax at a higher rate you may wish to take advice on how the property should be held and income split.
Tax on your rental property
When you make a decision to acquire a buy to let property it is important to consider the tax implications.
Furnished holiday lets
The tax rules applying to properties that meet the conditions necessary to be furnished holiday lets are different and you may wish to obtain guidance if you own such a property.
Our Tax team
Our tax team can advise you on the steps that can be taken to pay the right amount of tax. We can also assist you in quantifying and reporting any liabilities to tax. Get in touch using the button below to get started.