Over the last few years there have been numerous changes to tax legislation relating to residential properties. We thought it would be a good idea to have a quick reminder on the main areas you need to consider.
Capital Gains Tax Reporting regime
UK residents who sell their UK residential property which results in a CGT liability must report the disposal to HMRC and pay the tax within 60 days of the date of completion. Failure to report your gains in this way may result in penalty and interest charges.
Don’t forget that you can deduct your annual exemption from the gain (assuming you have not already used it against other gains during the year). The annual exemption for 22/23 is £12,300.
Since you only need to report a gain if there is tax to pay anyone who sells property that is their main residence and is therefore entitled to full principle private residence relief is available, or if the sale results in a loss or a gain within the annual exempt amount there is no need to report the disposal to HMRC.
If you are not resident in the UK and you sell property here then ALL disposals of land and property (both residential and non-residential) must be reported regardless of whether or not there is any tax to pay.
Inheritance Tax Residence Nil Rate Band
For deaths after 5 April 2017, the residence nil rate band (RNRB) can be claimed provided the family home is inherited by your children or grandchildren. The RNRB is currently £175,000.
It may be possible to claim the relief if your property is worth less than this amount but you used to own a property worth more and have now downsized.
The RNRB is transferable between spouses/civil partners in a similar way to the main nil rate band
Please note that if your net estate is worth over £2M the RNRB will be reduced by £1 for every £2 over this threshold. As such if you think your estate might be worth close to this amount it might be worthwhile undertaking an inheritance tax review with us to see if there is anything that can be done to protect this relief.
Stamp Duty Land Tax
From 23 September 2022 the threshold for SDLT UK residential properties was increased from £125,000 to £250,000. This means that when you purchase property for £250,000 or less you will pay no SDLT (provided you do not own any other property in which case the higher SDLT rates may apply).
Annual Tax on Enveloped Dwellings (ATED)
An ‘Enveloped Dwelling’ refers to UK residential property mainly held in a company structure where the property value is more than £500,000.
An annual charge to tax charge will arise and the company must complete an annual return each year. There are certain reliefs and exemptions to the tax charge however you will still need to complete the annual return even if there is no tax to pay.
Summary
There are clearly many factors to consider when buying, selling and owning residential property. If you have any queries or would like to discuss any of the above in more detail please do not hesitate to contact a member of our tax consultancy team.