April 2024 saw significant changes to Capital Gains Tax (CGT), marking a pivotal moment for property investors and homeowners. These adjustments, announced in the Spring Budget, aim to reshape property investment. Whether you’re a seasoned investor or a first-time buyer, understanding these shifts is important for confidently navigating the market and making the most of opportunities. Let’s review the changes and explore how they might affect you.
What is Capital Gains Tax?
Before delving into recent changes, it’s essential to grasp the basics of Capital Gains Tax (CGT). CGT is applied to the profit gained from selling an asset that has appreciated. Unlike other taxes, CGT focuses on the gain rather than the total proceeds of the sale. Understanding CGT is important because it directly impacts the amount you get post-sale.
Key changes in CGT rates
Property owners and investors need to be well-informed about the latest changes to Capital Gains Tax (CGT). Understanding these adjustments can significantly impact your financial decisions and tax liabilities. Here’s a summary of what’s changing:
Lowering of higher rate CGT on UK residential property disposals: To boost activity in the residential property market, the Government is lowering the higher rate of CGT on UK residential property disposals from 28% to 24%, effective from the 6th of April, 2024. The lower rate remains unchanged at 18%. This move aims to encourage earlier sales of second homes and buy-to-let properties to increase transaction volumes and inject vitality into the housing sector. Individuals, trustees, and personal representatives involved in residential property transactions are affected by this change.
Key changes to CGT allowances and annual exemption amount: There are some important changes to Capital Gains Tax (CGT) allowances. Starting from April 2024, the CGT annual exempt amount is dropping from £6,000 to £3,000. This affects individuals, personal representatives, and trustees for disabled people. Other trustees for the 2024/2025 tax year will have an annual exempt amount of £1,500.
Impact on Furnished Holiday Lets (FHLs): Owners of Furnished Holiday Lets (FHLs) should pay close attention to the changes. While the top capital gains tax rate on the sale of residential property is reduced to 24%, the beneficial tax treatment for FHLs is set to be abolished from April 2025.
What it means for you
For individuals involved in residential property transactions, the reduction in the higher CGT rate offers a welcome opportunity for potential savings. With the higher rate now set at 24%, there may be more flexibility in managing your finances following the sale of a property. This change eases the tax burden for those handling property transactions, providing more breathing room in financial planning.
If you own an FHL, it’s important to look at your situation and consider your options.
Navigating the new terrain
In light of these changes, property owners and investors should review their portfolios and tax strategies. Whether you’re planning to buy, sell, or hold onto property assets, understanding the evolving landscape of CGT is key to optimising your financial outcomes. Stay informed, seek advice, and adapt your approach to navigate the shifting terrain of Capital Gains Tax effectively.
Connect with experts
If you’d like some guidance with understanding what’s involved in property investments amidst these CGT changes, our experts are here to help. Contact us today on 01603 630882 or fill out our contact form for personalised help tailored to your needs.
2024 is shaping up to be an exciting year for anyone interested in buying, selling, or investing in property. With guidance from Pymm & Co, a reputable estate agency that provides valuable insights and expert guidance in the property market, we’re here to give you a helpful overview of what’s going on in the housing market and share some valuable insights when it comes to property this year.
The Housing Market is Bouncing Back
Great news – the housing market is making a remarkable comeback after a bit of a rollercoaster ride. More and more people are getting into the property game thanks to increased activity, affordable housing options, and a boost in confidence among both buyers and sellers. One big reason for this recovery is the expected drop in interest rates later in 2024, making mortgages more attractive with competitive long-term fixed rates popping up.
Hello, First-Time Buyers!
First-time buyers are making a strong comeback in the housing market. High rental prices are pushing people to invest in their future by becoming homeowners. This is a promising sign for the market, highlighting more diverse participation and a lively exchange of properties.
Checking Out Norfolk: A Case Study
Let’s take a closer look at Norfolk’s housing market. Last Boxing Day, there was a significant increase in property listings, almost double the previous year. This surge in properties to pick from is fantastic for potential buyers. Our partners at Pymm & Co. saw a 5% boost in sales in 2023, with a big spike in the last quarter.
Navigating Neighbourhood Trends
In this ever-evolving housing landscape, paying attention to neighbourhood trends is a good idea. Certain areas may experience a surge in popularity due to factors such as new infrastructure developments, proximity to employment hubs, or emerging cultural scenes. Keeping your finger on the pulse of these trends can help you make informed decisions that align with your lifestyle and investment goals.
Sustainability and Smart Homes
The housing market is also witnessing a green revolution. Sustainability is not just a buzzword; it’s a driving force in property choices. Energy-efficient homes, solar panels, and smart home technology are becoming increasingly attractive. These features not only reduce your carbon footprint but can also save you money on utility bills and improve your quality of life. So, consider how eco-friendly options align with your values and long-term plans when exploring the market.
Disclaimer: This content on property auctions below isn’t financial advice, so if you’re interested in a property auction, you should seek professional advice before an auction begins. This content shouldn’t be used against its author or Pymm & Co. in any legal repercussions around a property auction purchase.
Pros and Cons of Property Auctions
Property auctions in 2024 have some great perks. They can be super fast, so you can get the property you want quickly. Plus, you might find amazing property deals at good prices, which is perfect if you want to invest in property. But, there’s a catch. Property auctions can be tricky. You need to be ready and know what you’re doing, so do your homework before you raise your hand on auction day.
Getting Ready for Property Auctions
As we’ve mentioned, preparation is the name of the game for property auctions. You must do your homework, secure your finances in advance, plan your bidding strategy, and understand all the ins and outs of auction participation. This includes registering with the necessary ID and funds, being aware of auction house fees, and diving into those legal property packs. Also, don’t forget to do your due diligence with property inspections, title searches, and understanding market values.
Bidding Strategies and Renovations
Setting a budget and sticking to it is your secret weapon to avoid overspending at auctions. And if you’re looking to renovate auction properties for profit, make sure your plans align with market demand, not just your personal taste.
What’s Ahead for the Housing Market
Looking forward, the housing market in 2024 is a mix of optimism and caution. Interest rates are expected to drop, making the market more accessible, but staying informed is key. For auction enthusiasts, research remains your best friend. Always analyse every detail from the vendor and auction house to make smart decisions.
Why Consider Moving in 2024?
There are plenty of reasons to consider making a move this year. The housing market is on the mend, offering more affordable options. Anticipated lower interest rates and a variety of long-term fixed-rate mortgages make it a prime time for securing a mortgage. Plus, the increase in property listings, as seen in Norfolk, means more choices for buyers. The return of first-time buyers to the market is heartening, as it brings stability and growth.
Seize the Opportunities
This year’s housing market is full of opportunities, with a recovering economy, improved mortgage conditions, and renewed confidence among buyers and sellers. Whether you’re a newbie or a seasoned pro, there’s something for everyone. But remember, being well-informed is key, especially in areas like property auctions and renovations.
Let’s Make It Happen Together
If you’re ready to dive into the housing market and need help navigating Capital Gains Tax, call us today on 01603 630882 or fill out our contact form. Our expert team is here to guide you whether you’re buying, selling, or investing. Let’s unlock your property potential together!
The landscape of Capital Gains Tax (CGT) for non-residents in the UK, especially regarding property, has undergone significant changes in recent years. Understanding these changes is crucial for non-residents who have disposed of or plan to dispose of property in the UK. This guide aims to simplify the complexities of CGT for non-residents, providing a clear overview of what’s required.
Tax if you live abroad and sell your UK home
If you live abroad and sell your UK home, you may need to pay tax on profits since April 2015. It’s important to inform HMRC about the sale within 60 days, even if you don’t owe tax. Tax relief is often available, especially if you’ve spent significant time in the home. However, this relief can be limited if you’ve rented out part of your home, used it for business, or if the property is large. The last nine months of ownership usually qualify for full tax relief, which is longer for those with disabilities or in care.
Key Changes
Extension of CGT for Non-Residents: Since 6 April 2019, non-resident CGT covers both direct and indirect disposals of all UK property or land. This includes residential, non-residential, and mixed-use properties.
Corporate Entities: From the same date, non-resident companies are subject to Corporation Tax on gains from UK property rather than CGT. This applies to collective investment vehicles and life assurance companies.
Reporting Requirements: Since 6 April 2020, non-residents must report and pay CGT for disposals of UK property or land, including residential, non-residential, and mixed-use properties.
Calculating the Gain or Loss
There are three primary ways to calculate the gain or loss: using the market value as of the 5th April 2015, a time apportionment method, or calculating over the whole ownership period. Getting an accurate property valuation is the owner’s responsibility and, whilst HMRC doesn’t prescribe a specific valuation method, professional valuation is always advisable.
Rebasing Method: For properties owned before the 6th of April 2015, the standard approach is to use the market value on 5 April 2015 and calculate the difference from the disposal date value. Similarly, for assets owned before the 6th of April 2019, the market value as of the 5th of April 2019 is used.
Time Apportionment: Alternatively, a simple straight-line time apportionment of the whole gain over the ownership period can be used, though this might be more beneficial in case of a loss.
Find out more about working out your taxable capital gain or loss with the HMRC Capital Gains Tax calculator here
Key Reporting and Tax Payment Information for Property Disposals
Mandatory Reporting: Disposals must be reported to HMRC even if no tax is due or a loss was incurred.
Reporting Time Frame: The disposal of UK residential property must be reported and any due tax paid within 60 days of selling the property if the completion date is on or after 27 October 2021.
Online Reporting: Disposals are reported using an online CGT account, requiring specific details about the property and the disposal.
Self-Assessment Inclusion: If you complete a Self-Assessment tax return, you must include details of the disposal unless it’s your main home and qualifies for Private Residence Relief.
Find out more about when and how you need to report disposals and pay Capital Gains Tax if you’re not a resident of the UK here.
Tax Relief and Exemptions
Private Residence Relief: Non-residents may qualify for Private Residence Relief, particularly if they, their spouse, or civil partner spent at least 90 days in the UK home during the tax year.
Final Period Relief: Full tax relief is granted for the last nine months of ownership (36 months for disabled or long-term residential care individuals), with some exceptions.
Annual Exempt Amount (AEA): CGT is only payable on gains above the AEA. For 2023 to 2024, the AEA for individuals, personal representatives and trustees for disabled people is £6,000. For all other trustees, it’s £3,000. Find out more here.
International Treaties: Double Taxation Treaties can affect tax liability, with a requirement to file UK tax returns to claim treaty relief.
Compliant and Informed
Understanding and complying with the UK’s CGT requirements for non-residents can be challenging, but it’s essential to avoid penalties and optimise tax liabilities.
At Norwich Accountancy, we know that everyone’s situation is different. Our specialists can help you navigate the world of UK property as a non-resident, especially for complex cases or significant property disposals. Don’t hesitate to get in touch for advice on staying informed and compliant, and to tackle the topic of tax stress-free.
Capital Gains Tax (CGT) is one of those financial terms with the potential to send shivers down anyone’s spine. Often seen as a hindrance, it is a tax levied on the profit gained from selling an asset like property, shares, or valuable possessions.
While paying tax is a civic duty, there’s no reason you shouldn’t take advantage of legitimate means to reduce your CGT liability. In this blog, we’ll cover some tried and tested strategies to help you minimise your CGT burden.
Understand Your Allowance
Before plunging into complex tax-saving mechanisms, it’s important to understand that the UK has an annual tax-free allowance known as the annual exempt amount (AEA). This is the amount you can make in capital gains without paying any tax. Always take this into account before making any disposals.
For the tax year 2023 to 2024, the AEA is £6,000 for individuals and personal representatives and £3,000 for most trustees. For the tax year 2024 to 2025 and subsequent tax years, the AEA will be permanently fixed at £3,000 for individuals and personal representatives, and £1,500 for most trustees.
How much Capital Gains Tax will I pay?
Again, before looking at ways to minimise your tax payments, it’s good to know how much tax you’ll expect to pay when you sell your assets.
The rates differ if you are looking at gains from residential property and whether you pay a higher rate of Income Tax.
If you pay a higher rate of Income Tax, you’ll pay:-
28%* on your gains from residential property
20%* on your gains from other chargeable assets
If you pay basic rate Income Tax, you’ll need to:
Work out how much taxable income you have
Work out your total taxable gains
Deduct your Capital Gains tax-free allowance.
Add this amount to your taxable income.
If this amount is within the basic Income Tax band, you’ll pay 10%* on your gains (or 18%* on residential property). You’ll pay 20%* on any amount above the basic tax rate (or 28%* on residential property)
7 Ways to Reduce Capital Gains Tax
Utilise the Spouse Exemption
One of the ways to minimise your Capital Gains Tax is to utilise the spouse exemption. If you’re married or in a civil partnership, you can transfer assets to your spouse or civil partner without triggering CGT. Once the asset is in their name you can utilise both your tax-free allowances, effectively doubling the tax-free amount.
Hold Investments in a Tax-Efficient Wrapper
You might consider holding your investments in an Individual Savings Account (ISA) or a pension fund. Investments within these wrappers can grow and be withdrawn tax-free, offering a legitimate way to avoid CGT. However, bear in mind there are annual limits on contributions to these accounts, so plan wisely.
Offset Your Losses
Another effective way to reduce your CGT is by offsetting capital losses against your capital gains. If you have investments that aren’t performing well, consider selling them to realise a capital loss. These losses can then be used to offset gains, reducing your overall tax liability. You can even carry forward unused losses to offset against future gains.
Make Use of Business Asset Disposal Relief
If you own a business, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief until 2020) could be beneficial. This relief allows you to pay a reduced tax rate of 10% on gains from selling all or part of your business, subject to certain conditions. The lifetime limit for this relief is £1 million, so it’s an excellent way to save on large capital gains.
To qualify for the relief, you must have been a sole trader or business partner for 2 years and owned the business for at least 2 years up to the date you sold your business.
Invest in Enterprise Investment Schemes (EIS)
The EIS is designed to help smaller companies raise finance by offering tax relief to investors. By investing in an EIS-eligible venture, you can defer CGT from other assets as long as the gain is invested in the EIS within a set period. Plus, there are other tax benefits of investing in an EIS, such as income tax relief and inheritance tax exemption.
Make Charitable Contributions
Giving to charity can also help reduce your CGT. If you donate an asset to a registered charity no CGT will be due. Alternatively, you can sell an asset to a charity at less than its market value, which will minimise the capital gain and, therefore, the CGT.
Plan Your Disposals
Timing is everything. Spreading the disposal of assets across multiple tax years can help you maximise your annual tax-free allowance. By planning the timing of your disposals wisely, you can reduce the amount of gain subject to CGT.
Still have questions?
Capital Gains Tax may seem daunting, but there are various strategies to mitigate the amount you pay. By understanding your tax-free allowance, utilising tax-efficient wrappers, and making smart financial decisions, you can minimise your CGT liability and keep more of your hard-earned money. Always remember that failing to plan is planning to fail, especially where taxes are concerned.
If you still have questions about Capital Gains or any other taxes, get in touch or contact us online here.
* Remember, these figures can change based on government decisions
Interest – it’s what you pay for borrowing money and what banks and building societies pay you for saving money with them. The Bank of England Base Rate is the single most important interest rate in the UK and determines and influences many other interest rates, including those you might have for a loan, mortgage, or savings account. If you have a mortgage or loan, a higher interest rate means your payments may go up. If you have savings, that means you may get a higher return. So, not great news for mortgage holders but better news for savers.
The UK’s mortgage market is facing challenges as a result of rising interest rates. The Bank of England has been steadily lifting the base rate since December 2021, with 14 increases from 0.25% in December 2021 to 5.25% in August 2023. Understandably, this has a knock-on effect on mortgage rates, which have been steadily increasing, leading to a worrying time for homeowners.
In this article, we’ll look in more detail at the impact of high-interest rates in the UK’s mortgage market and how it can affect you. Hopefully, it’s of ‘interest’ (see what we did there).
Why have interest rates gone up?
Interest rates are closely tied to inflation, and rates have increased because the UK’s inflation is too high.
Inflation is the increase in the price of something over time. For example, if a loaf of bread costs £1 but £1.05 a year later, then annual bread inflation is 5%. The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items in an imaginary and regularly reviewed “basket of goods” to calculate inflation. Britain has struggled more than other countries with the surging cost of food, a shortage of workers to fill jobs and its heavy reliance on natural gas to generate power and domestic heating, all of which adds to inflation pressure.
Inflation is bad for the economy and hits those who can least afford it the hardest. Raising interest rates is how the Bank of England can help to get inflation back down. The theory behind this is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, reducing demand and, in turn, inflation.
How high-interest rates affect the housing market
The housing market is intricately linked to the mortgage market, and rising interest rates can lead to a slowdown in both home sales and price appreciation. This dynamic often results in a shift from a seller’s market to a buyer’s market, where buyers have more negotiating power.
Higher interest rates can affect potential homebuyers who were previously on the edge of their borrowing capacity, potentially pushing them out of the market and adding to a decline in demand and increased downward pressure on prices. As a result, sellers might find it challenging to sell their properties at the price they’d like, resulting in longer listing times. Alternatively, sellers might resort to reducing the price of their home. And when the housing sector experiences a slowdown, construction and related industries can also see a knock-on effect.
High-interest rates can also influence the decisions of property investors. With higher borrowing costs, the potential return on investment decreases. As a result, some investors might reconsider buying additional properties or may even sell existing ones. This can impact the supply of rental properties in the market, potentially leading to rental price increases as property owners look to offset and pass on their increased costs.
Another important factor in the housing market is the behaviour of lenders. As interest rates rise, they may become more cautious about lending to potential homebuyers, particularly those with higher risk profiles. Stricter lending standards might be implemented, making it more difficult for individuals with lower credit scores or irregular income streams to secure mortgages. This could create barriers to entry for first-time homebuyers and dampen overall housing market activity.
How high-interest rates affect people with mortgages
If you already have a mortgage, high-interest rates can affect you in several ways:
The affordability of mortgages. As interest rates rise, so does the cost of borrowing, resulting in higher monthly mortgage payments. The impact will vary depending on individual circumstances; for example, people with high LTV (loan-to-value ratios) mortgages will be impacted more than those with low LTV mortgages. Additionally, if you have a variable-rate mortgage, the cost of your repayments is likely to go up straight away. But if you’re on a fixed rate, you won’t see any change until your fixed period ends.
Less disposable income. As interest rates rise and borrowing becomes more expensive, consumer spending can take a hit. When households allocate a larger portion of their income towards mortgage payments, they have less to spend on other goods and services.
The ability to remortgage existing homes. When rates are low, homeowners often refinance to secure lower monthly payments or tap into their home equity. However, this option becomes less attractive when rates are high as consumers have less disposable income. This may lead to people having to sell their homes because they can no longer afford the monthly repayments.
Mortgage defaults. Rising interest rates may lead to more mortgage defaults as people struggle to afford their monthly repayments and default on their loans.
How to deal with rising mortgage interest rates
While rising interest rates undoubtedly cause concern for mortgage holders, several factors may mitigate the impact of high-interest rates.
Government help. There is government help for those who are really struggling, called support for mortgage interest (SMI). This is available to people who receive one of a list of other benefits, including universal credit and income support. For those who qualify, the government pays some of your mortgage interest payments, but in the form of a loan (which must be repaid with interest). Borrowers tend to pay off the loan when they sell the property or when they die.
A growing economy. Another factor that could mitigate the impact of high rates is that the economy is still growing. So, people’s incomes are still rising, which may help them afford higher mortgage repayments.
As well as these mitigating factors, there are also a few ways to stay in control of your mortgage payments.
Budgeting. You can use a mortgage calculator to work out how your monthly payments might be affected and then create a budget and see if there are any areas where you can cut back. If increases are likely in the future, you can start building up a savings buffer so you can still afford your mortgage when they hit.
Contact your lender. If you’re struggling to pay your mortgage, you should contact your lender as soon as possible. Depending on your circumstances, the lender may offer a range of options, such as reducing the amount you pay for a short period.
Overall, the impact of high-interest rates on the UK’s mortgage market is uncertain. The market may slow down, but it’s also possible that government schemes and a growing economy will help mitigate the impact. Only time will tell how the market will react to rising interest rates.
If you’re thinking about buying a home, it’s important to factor in the impact of rising interest rates in the future. Think about your circumstances and how you’ll be affected by higher mortgage repayments. In essence, work out what you can afford now and whether you’ll still be able to afford it if rates rise again.
As always, get in touch if you need to know more, and we’ll be happy to help.
We not only make sure you pay the right taxes by the right deadlines but help you pay as little tax as possible. Capital Gains Tax (CGT) is a tax on the profit you make when you sell an asset that has increased in value, but some assets that are exempt from CGT in the UK, including:
Your main home. You don’t pay CGT on any gains you make when you sell your main home if you have one home and you’ve lived in it as your main home for all the time you’ve owned it.
Personal possessions. You don’t pay CGT on gains you make when you sell personal possessions, like furniture or jewellery, up to your annual exemption of £6000. This means that you don’t pay CGT on gains up to this amount, but you do if you’re lucky enough to be the owner of a Banksy and decide to sell for example.
Assets held in an ISA or a SIPP. You don’t pay CGT on gains you make when you sell assets held in an ISA or a SIPP. ISAs and SIPPs are tax-efficient savings and investment accounts.
Certain business assets. If you’re self-employed or run a business, you may be able to claim relief from CGT on gains you make when you sell certain business assets, including goodwill and intellectual property.
If you’re unsure whether an asset you’re selling is exempt from CGT, we can help you work out whether you have to pay CGT and what you’ll have to pay.
Extra tips about CGT and assets
Check out these extra tips to help you keep on top of any potential CGT tax liabilities:
Keep good records. It’s important to keep good records of all of your assets, including the date you bought them, the amount paid and any improvements you’ve made to them. This helps you calculate the gains when you sell the asset and makes sure you don’t overpay CGT.
Report your gains. If you sell a residential home subject to CGT, you must report the gains to HMRC within 60 days.
If you’re unsure about CGT, always seek professional help. We can help you calculate your gains, show you how to report them to HMRC and make sure you’re not paying more than you need to.
In his Autumn Statement in November 2022, Jeremy Hunt, the UK’s Chancellor, announced changes to Capital Gains Tax (CGT). These changes came into effect in April 2023 and have certainly made their mark on property investment and it’s now more expensive for investors to sell properties, reducing the potential profits.
The reduction in CGT allowance
One of the biggest changes is the reduction in the CGT annual exemption, set to drop from £12,300 to £6,000 in 2023/24 and investors will have to pay CGT on any gains made on property sales above the new exemption level. For example, if an investor sells a property for £200,000, making a gain after deducting allowable costs of £100,000, and has already used their annual exemption, they will have to pay CGT on every penny of the £100,000 profit.
The increased CGT for higher-rate taxpayers
Another change making waves is the increase in the rate of CGT for higher-rate taxpayers. If you’re a higher or additional rate taxpayer you’ll now pay 28% on your gains from residential property and 20% on your gains from other chargeable assets.
If you’re a basic rate taxpayer, then the rate you pay depends on a few different things, from the size of your gain to your taxable income and whether your gain is from residential property or other assets.
The changes to CGT have hit some property investors hard as it’s not only now more expensive for investors to sell properties, their potential profits are squeezed and they’re finding it harder to grow their portfolios.
Benefits from the CGT changes
But, believe it or not, there are some potential perks to the CGT changes. The drop in the annual allowance may encourage investors to keep their properties for longer, reducing the number of properties on the market and pushing up prices.
Top CGT tips for property investors
Here are our tips for property investors affected by the changes to CGT:
Plan property sales carefully. Plan any property sales and make sure that you sell when you can make the most profit.
Consider holding onto properties for longer. Don’t panic sell. Consider keeping properties for longer to potentially avoid paying CGT.
Invest in different asset classes. Look at investing in different asset classes, such as stocks and shares, to reduce your exposure to CGT.
Seek professional advice. As with all investments and money matters, we always recommend getting advice from a qualified accountant or tax adviser to understand the changes to CGT and how they may affect your investments.
Overall, the changes to CGT have had a mixed impact on property investment. As we’ve seen, it’s now more expensive for investors to sell properties and the potential profits on property sales aren’t what they once were. On the flip side, there are potential benefits, too, like encouraging investors to keep properties for longer and reducing the number of properties on the market for a better balance when it comes to supply and demand. The fewer properties there are to complete with, the higher price you can command for your own bit of bricks and mortar.
Aside from the emotional factors, there are two sides to inheriting a property; it’s a great opportunity but it can also be hard work. So, if you’ve inherited a property, what can you do with it? The best option for you depends on your circumstances, but we have some options for you to consider.
Inherited property: your options
Before you make a decision on an inherited property, think about the different options open to you, including:
● Living in the property. The simplest of all your options; move in and start enjoying your new home. If you’ve already got a property, decide whether to sell it or rent it out and earn extra income. ● Rent out the property. Instead of living in it yourself, let someone else live in it by renting it out to tenants. It’s a great way to generate an income but go in with your eyes open as it comes with certain responsibilities, like finding tenants, collecting rent, dealing with repairs and keeping up with the maintenance. ● Sell the property. If the above two options don’t appeal to you, sell the property. Yes, you’ll hopefully make money but bear in mind you’ll need to pay Capital Gains Tax (CGT) on any profit you earn.
Whatever you decide to do with your new property asset, you must get professional advice. There are two important people you’ll need, a solicitor to help you handle the legal aspects of your inheritance and an accountant to manage the tax implications.
Making a decision: what to think about
Before you jump in, here are some points to consider first:
● Your personal circumstances. Questions to ask yourself: do you need a place to live? Do you want to generate an income? Do you need to raise money? ● The condition of the property. Assess the property by asking: is the property in good condition? Will it need repairs or renovations? ● The location of the property. Consider: is the property in a desirable location? Will it be easy to find tenants? ● The value of the property. The six million dollar question: how much is the property worth? Will you have to pay CGT if you sell it?
Think about your answers to these questions, and others, before you make a decision that affects you and your family.
What to do with an inherited property: extra tips
Here are a few extra tips when it comes to what to do once you’ve inherited a property:
● Get a valuation. If you don’t know what it’s worth, how can you make an informed decision about what to do with your inherited property? ● Check the title deeds. Make sure you’ve got the property’s original title deeds which detail who owns the property and the rights they have. ● Check for any outstanding debts. Are there any outstanding debts on the property, like a mortgage or a loan? ● What are the tax implications? You may have to pay inheritance tax on the property but an experienced tax adviser will be able to tell you more. ● Make a plan. Now you’ve got the information you need, you’ll be able to see the bigger picture and avoid any problems in the future.
If you’ve inherited a property, you may need to consider the implications for you and your family. So, we’re here to help you work out what’s best for you and those around you. Get in touch today.
When you sell an asset that has increased in value, such as property, cars or even shares, you will have to pay a tax on the profit, called Capital Gains Tax (CGT). In the UK, the current CGT rates are 10% or 20% for individuals (not including residential property and carried interest).
Why do you need to pay CGT?
If you’ve sold an asset which had increased in value and the gain, or profit, is greater than your annual CGT allowance – this is currently £12,300 for the 2022/23 tax year – you will need to pay CGT on the difference.
If the gain is less than your annual allowance, you don’t need to pay CGT but you will still need to report the gain on your next tax return.
When don’t you need to pay CGT?
If you’ve sold an asset which had increased in value and the gain, or profit, is greater than your annual CGT allowance – which for the 2022/23 tax year is £12,300 but will drop to £6,000 for the 2023/24 tax year – and you will need to pay CGT on the difference between your annual personal CGT allowance and the sale price.
If the gain is less than your annual allowance, you don’t need to pay CGT but you will still need to report the gain on your next tax return.
How to calculate your CGT bill
To calculate your CGT bill, you need to know how much your gain (profit) is by subtracting the original cost of your asset from the sale price.
For example, if you bought a share for £100 and then sold it for £150, your gain would be £50.
Now you know your gain, apply the relevant tax rate to calculate how much CGT you will need to pay. For the 2022/23 tax year, Gov.uk outlines the CGT rates as:
● 10% and 20% tax rates for individuals (excluding residential property and carried interest) ● 18% and 28% tax rates for individuals for residential property and carried interest ● 20% for trustees or for personal representatives of someone who has died (excluding residential property) ● 28% for trustees or for personal representatives of someone who has died for the disposal of residential property ● 10% for gains qualifying for Business Asset Disposal Relief (previously known as Entrepreneurs Relief) ● 28% for Capital Gains Tax on a property where the Annual Tax on Enveloped Dwellings is paid, the annual exempt amount is not applicable ● 20% for companies (non-resident Capital Gains Tax on the disposal of a UK residential property)
As you can see the rates vary depending on whether you’re an individual or a business and what it is that CGT may apply to. If you’re unsure what rate your gain is subject to, we’re always here to help.
How to pay CGT
How you report and pay your Capital Gains Tax depends on whether you sold a residential property in a residential property in the UK on or after 6 April 2020 or any other asset that’s increased in value in the time between purchasing and selling it.
To report your gain you’ll need to know:
● how much you bought and sold the asset for. ● when you bought and sold the asset. ● any other relevant details, like any costs associated with the purchase, improving the asset and any tax reliefs you’re entitled to.
Here to help
CGT can be a complex and confusing tax but to make sure you’re paying the right amount, it’s important to understand how the tax works. That way you will avoid paying more tax than you need to.
If you’re planning on selling an asset that has increased in value but are unsure whether you need to pay CGT, or how much CGT you owe, our experienced, professional tax advisers at Norwich Accountancy are on hand to help you.
Losing a loved one can be a difficult time without having inheritance tax (IHT) to contend with. But unfortunately, it’s something that beneficiaries of a deceased person’s estate, which includes their property, possessions and money, have to pay. Currently, the standard IHT rate in the UK is 40%. This rate is only applied to the value of the estate that is above the tax-free threshold of £325,000.
Who pays inheritance tax?
In most cases, the beneficiaries of the deceased person’s estate pay the inheritance tax. However, if the estate is valued at less than the tax-free threshold, there won’t be any IHT to pay.
What is the tax-free threshold?
To reiterate, the tax-free threshold applied to inheritance tax is currently £325,000. This means that if the value of the deceased’s estate is below this figure, the beneficiaries don’t need to pay any tax. However, if the value of the estate is above £325,000, they will need to pay inheritance tax but only on the amount above the tax-free threshold. For example, if an estate is worth £400,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £75,000 (£400,000 minus £325,000).
What are the inheritance tax exemptions?
There are a number of exemptions from inheritance tax. Gifts given whilst the deceased person was still alive may still be subject to IHT depending on when you received the gift but ‘taper relief’ might mean the Inheritance Tax charged on the gift is less than 40%. You can find out what counts as a gift here.
Business Relief means that some assets can be passed on free of Inheritance Tax or, at least, with a reduced bill.
How to reduce your inheritance tax bill
Planning ahead for inheritance tax will help towards reducing the tax bill your family and/or beneficiaries will have to pay upon your death. Ways you can do this include:
Making gifts to charity.
Using trusts.
Inheritance tax advice and planning.
Here are some other inheritance tax considerations to think about:
The tax-free threshold may rise in 2026.
There is a Residence Nil Band Rate (RNBR) of £175,000 which can be used to reduce the amount of inheritance tax payable on the family home.
The RNRB is likely to rise in 2026.
If you’re concerned about inheritance tax, Norwich Accountancy always recommends seeking professional advice from an experienced tax adviser. We can help you understand the implications of inheritance tax in respect of your estate, and help you plan for the future so get in touch to find out more.
