Property tax
Cutting a tax bill requires planning

Q: I am about to sell my buy-to-let. How much tax could I owe?

A: The first £9,200 (tax year 2007/08) of profit per person is free of capital-gains tax. If you are married you could also transfer it into joint names to use both CGT allowances, worth £18,400.

Buy-to-lets also qualify for non-business-asset taper relief. The longer you hold the asset, the smaller the tax bill.

Q: Are there any other ways I could cut the tax bill?

A: You could live in the property a few weeks before you sell, claim it as your principal private residence (PPR) and obtain three years of growth free from CGT. H M Revenue and Customs does not specify how long you need to have lived there, but they may ask for proof.

Some solicitors suggest putting the property into trust with two beneficiaries — you as the owner and your tenant. You still own the house; the tenant just has the right to live there. It is important that you always obtain professional advice first before taking any action.

Q: What about tax on rental income?

A: Rent is subject to income tax, but the interest you pay on your mortgage can be set against your tax bill.

You can also obtain tax relief on costs such as maintenance bills, so keep the receipts.

Q: How much CGT would I owe on a holiday let?

A: You benefit from generous business-asset taper relief when it is sold. A higher-rate taxpayer would pay just 10 per cent tax on any gains after 10 years.

There are strict criteria to qualify. The property has to be available to the public for at least 140 days a year; lettings have to amount to at least 70 days; the property must be fully furnished; and it must be let at a market price.
You can avoid CGT by reinvesting the proceeds from the sale into another holiday home that meets the letting rules within three years.

Q: I rent out rooms. Must I pay tax when I sell?

A: Normally your main home is exempt from CGT, but if you have rented out rooms you do not qualify for 100 per cent relief because you have not been using the entire house yourself.

Rent-a-room relief is permitted of up to £4,250 (2007/08) of the rental income tax-free, but you must still declare it.

This article is for your general information and use only and is not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their particular situation. Your home may be repossessed if you do not keep up repayments on your mortgage.

Article date: 03.07