Tax Implications of Buying & Selling Property in the UK

Whether you're purchasing your first home, investing in rental properties, or selling your family home, tax implications of buying and selling property can be complex. At Toast Accountants we understand that understanding these tax considerations is crucial for making informed financial decisions.

This blog has been carefully crafted to help you understand the key tax implications associated with buying and selling property in the current tax landscape, whether you are an individual or are purchasing property from a Company. From capital gains tax and stamp duty to allowable expenses and reliefs, we’ll break down the most important tax aspects you need to consider.

Individuals

Buying Property: Key Tax Considerations

Stamp Duty Land Tax (SDLT)

• What is SDLT? SDLT is a tax that buyers must pay when purchasing residential and non-residential property in England and     Northern Ireland. The amount of SDLT payable depends on the property's purchase price.
• Current Rates (as of November 2024):
  
   
  • The rates vary depending on whether you are a first-time buyer or purchasing an additional property (second home or buy-to-let).
   
  • For residential properties, the typical band structure is as      follows:
     
    • 0% on the first £250,000 for standard buyers, and £425,000 for first-time buyers.
     
    • 5% on the portion from £250,001 to £925,000.
     
    • 10% on the portion from £925,001 to £1.5 million.
     
    • Additional rates of 12% apply over £1.5 million.
     
   
 
• Additional Property Surcharge: If you are purchasing  an additional property, an extra 5% on the entire purchase price is  applicable.

VAT (Value Added Tax)

• Although residential property transactions are generally exempt  from VAT, commercial properties can be subject to this tax. It's crucial  to check whether the seller has opted to tax the property, which can have financial implications for buyers.

Additional Expenses

• Keep in mind that other costs may arise during the purchase process, such as legal fees, survey costs, and mortgage arrangement fees, but these do not typically have tax implications.

 Selling Property: Key Tax Considerations Capital Gains Tax (CGT)

• What is CGT? When you sell a property that has increased in value since you purchased it, you may be liable for CGT on the profit (gain) made.
• Private Residence Relief: If the property sold was your main residence, you may be entitled to Private Residence Relief,  which can exempt you from paying CGT for the period you lived in the     property.
• Annual Exempt Amount: Individuals enjoy an annual tax-free allowance on capital gains (for the 2024/25 tax year, this is £3,000), after which CGT rates of 18% for basic rate taxpayers and 28%     for higher and additional rate taxpayers apply.

Reporting CGT

• After selling a property, you must report any capital gains and pay the resulting tax within 60 days of completion. Failing to do so may incur penalties and interest.

Inheritance Tax (IHT)

• Land and property are considered part of your estate for IHT purposes. If the property is transferred as part of your estate after death or given away while still living, it may be subject to IHT depending  on your estate’s value.

Letting Relief

• If you have let out part of your home while living there, you may qualify for Letting Relief, which can also help reduce your CGT liability.

Non-Residents· Non-UK residents face specific tax obligations, including Income Tax on UK property rental income and potential CGT on the disposal of UK property.  Limited Companies 3.1 Tax Implications for Limited Companies For property investors who hold properties in a limited company, different tax implications apply, particularly concerning corporation tax on profits and how profits are withdrawn. Stamp Duty Land Tax (SDLT)When a UK company purchases property, it must pay Stamp Duty Land Tax (SDLT).

• Rates: SDLT is calculated based on the purchase price of the property, and different rates apply depending on whether the property is residential or non-residential.
• Thresholds: As of October 2023, the tax thresholds and rates may vary, and it’s crucial to check the most current  rates from HMRC.
• Higher Rates for Additional Properties: Companies purchasing buy-to-let or additional residential  properties may incur higher SDLT rates.

Value Added Tax (VAT)

• VAT Registration: If the property is new or has been renovated, it may be subject to VAT. Companies must determine whether to opt for VAT registration on the purchase.
• Input Tax Recovery: If the company is VAT registered, it may be eligible to recover VAT paid on the purchase, subject to specific conditions.

Business Rates

• Liability for Business Rates: After property  purchase, the company may be liable to pay business rates, which are determined by the property’s rateable value and location.
• Relief and Exemptions: Certain reliefs, such as Small Business Rate Relief, might be applicable, reducing tax liabilities.

Tax Implications of Owning Property Corporation Tax on Profits

• Rental Income: Companies earning rental income from properties must declare this income on their tax returns. The rental     income is subject to Corporation Tax, which, as of October 2023, is at a standard rate of 25%.
• Allowable Expenses: Companies can deduct certain expenses (maintenance, management fees, etc.) from rental     income before calculating the taxable profit.

Capital Allowances

• Claiming Capital Allowances: Companies can claim capital allowances on qualifying expenditures for fixtures and fittings within commercial properties. This can reduce the taxable income.

Holding Property in a UK Company Structure

• Avoidance of Personal Tax: Holding property within a company structure can help mitigate personal tax liabilities for shareholders, particularly when selling.

 Tax Implications of Selling Property Capital Gains Tax (CGT)

• Chargeable Gains: UK companies must  pay Corporation Tax on any capital gains made from the sale of property. The gain is calculated as the sale price minus the purchase price and  associated costs (such as improvements and selling expenses).
• Exemptions: Companies that sell property used  for trading purposes might qualify for reliefs, such as rollover relief, which allows deferral of CGT.

SDLT on Property Transactions

• Secondary SDLT Liability: On the sale of property, the buyer may be subjected to SDLT, though this does not directly impact the seller’s tax liability. However, companies should consider the potential for SDLT impact on sale negotiations.

Decommissioning and Disposal Costs

• Tax Relief on Disposal Costs: Companies can often deduct decommissioning or disposal costs as allowable business expenses, reducing the overall capital gains figure.

Other Considerations Property Management

• Professional Advice: It’s prudent for companies to consult with tax advisors or accountants when dealing with property transactions to understand all implications fully.

Future Legislation

• Adapting to Changes: Companies should     stay abreast of changes in tax legislation or rates that could impact property investments and transactions.

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Understanding the various tax implications of buying and selling property in the UK is crucial for ensuring compliance and maximising your financial return. Always consider seeking advice from a tax professional or accountant to navigate the complexities of property taxation and to tailor strategies specific to your circumstances. By having a thorough understanding of these tax implications, property buyers and sellers in the UK can make informed decisions that best support their financial goals.