Land and property are usually the most expensive assets a person will own throughout their lifetime, whether it is their home, their business premises, or even a holiday getaway in the country. As a result, they often attract the largest tax bills a person might have to pay.
These assets are also subject to some of the widest range of taxes compared to other assets:
- Annual Tax on Enveloped Dwellings (ATED)
- Capital Gains Tax (CGT)
- Corporation Tax (CT)
- Inheritance Tax (IHT)
- Income Tax (IT)
- Stamp Duty Land Tax (SDLT) and
With each of these taxes comes their own set of unique and often complicated rules. But you’ll also be pleased to know that some also come with certain reliefs and allowances which serve to reduce your tax bill.
Below are some common pitfalls people may fall foul of in respect of land and property transactions:
Joint ownership of properties
The default position for properties jointly owned by married couples and those in civil partnerships is that any income received from a property is shared equally between the two. If one spouse or civil partner earns significantly more than the other, they may end up paying more tax on that income. To mitigate this, it is possible to make Declarations of Trust to allocate ownership in unequal shares to minimise exposure to higher rates of tax. Subsequent elections can be made to HMRC for a couple to be taxed as per beneficial ownership of the property.
Principle Private Residence Relief
Most people are aware that the sale of your home is exempt from CGT. However, there are certain circumstances where CGT may be payable on part of the sales proceeds if, for example, part of the property is used for business purposes, or if the garden and grounds exceeds an area of half a hectare.
Building works on properties are a tricky area, especially when determining whether the works are classed as capital or revenue in HMRC’s eyes. Capital expenditure may only be claimed as an expense when selling the property, whereas revenue expenditure may only be claimed as an expense against the rents received. Unfortunately, if you do not get it right first time, particularly in respect to revenue expenditure, you may never be able to claim relief for the work you’ve had done.
People make the mistake of dealing with the tax implications of a land and property transaction once it has happened. However, with proper advice even at just the planning stage of whatever you wish to do, we can look at measures that you may be able to take to make the most of the available reliefs to reduce, and in some circumstances mitigate, any tax you may have to pay.