Property And Capital Gains Tax
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17 February 2012
are many who take a very blasé “mine by right”
approach to the principal private residence and capital gains
have however been some recent Tribunal cases
which have proven that HMRC respect this very favourable tax relief but
down very heavily on anybody who take advantage of it and that would
lack of evidence about substantial occupation of the property, i.e. the
property not really being the principal private residence.
does mean that any gains on the property are
completely free of tax and there is a three years after the date of
principal private residence relief still applies.
those with a second property, there can again be a
little bit of taking for granted of the relief along with an assumption
possibly it applies to the second property.
However this is not the case and a careful review of the
and exactly what is the principal private residence should be
undertaken by all
those taxpayers who do live in more than one property.
It is an area that HMRC are looking at
closely and should be treated with respect.
a taxpayers has made a profit on a residential
property it can be quite an addictive passion and the television
would encourage this property renovation as an exciting hobby.
taxpayers would like to improve a property and
then sell it, make a gain and have this gain taxed within the capital
regime, i.e. with a maximum rate of 28% as opposed to the top income
of 40% or 50% and to take advantage of the annual exemption for capital
tax. If the project
is undertaken by a
number of people, then obviously a number of annual exemptions for
gains tax could be used here.
tax rules state that any property bought with a
view to a realisation of a profit should be taxed to income tax as
capital gains tax and again, property owners should beware.
same would apply to many buy to let owners where
the interest exceeds the income and improvements to the property and
they do not think that the income has to be disclosed on their tax
if it shows a loss, when in actual fact it does all have to be recorded.
area of capital gains tax problems can be
where parents purchase a property for their children through the well
means of “the bank of mum and dad”.
must be very careful as to who is actually in the property, who is
property, to whom the principal private residence relief, if any, would
and if the property is being sub-let, where this income is being
recorded. There are
tax planning opportunities here
because if the property is purchased by, for example, a university
newly employed child it can be a good use of annual
exemptions. It can also be a way of
passing the wealth
down to the next generation for inheritance tax and there can be some
advantages (subject to the potentially exempt transfer
rules). It could well be that part
of the capital
gain or indeed all of the capital gain where the house is in the name
child would actually qualify for principal private residence relief in
of the children.
practical tax planning point is to review all
residential property for tax planning purposes and act now.
If the taxpayer is
planning to move, planning
to purchase a second property, buy to let, furnished holiday lets,
the children, then they must seek professional advice as it is very
in all areas.
About the Author
Supplied by Julie
Butler F.C.A. Butler
& Co, Bennett House,
The Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email; firstname.lastname@example.org,
the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine
ISBN: 0406966540 and Stanley: Taxation of
Farmers and Landowners (LexisNexis)
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Article Published/Sorted/Amended on Scopulus 2012-07-10 13:32:58 in Tax Articles