PROPERTY TAX ADVICE
You will pay no capital gains tax when you sell your family home as long as it has been used for the entire period of ownership, as your private residence.
But what to do if you either have, or are considering the purchase of, a second home?
Individuals are charged Capital Gains Tax (CGT) in respect of gains made from selling, or otherwise disposing of assets. Any second or subsequent property that you buy will be subject to capital gains tax when you sell, assuming that you make a profit on sale. This will be whether you rent out the second property or keep it for your own use. There are ways to reduce, and in certain circumstances eliminate, this tax charge by making an election for the second property to be considered your principal private residence for tax purposes. We can advise on the criteria required, and the pros and cons of making this election if you are interested. There are strict time limits for these elections so it is important that advice is sought promptly.
Tax Tips for Landlords!
If you rent out property you will pay income tax on the difference between the rents you have charged in a tax year, less any allowable expenses and charges.
Allowable expenses include:
If you pay to maintain your property in its existing condition, you
can claim for the expenditure incurred. However if you improve the
specification of the property, say replace kitchen units with a more
expensive design, then the Revenue may try and argue that the
expenditure is an improvement. The cost of improving your property
can be claimed against any capital gains tax when you sell, but will
not be allowed as a deduction for income tax. There are currently
concessions relating to insulation and also for replacing outdated
items such as single glazed windows with double glazing, this being
the modern equivalent.
• Mortgage or loan interest
You can claim for all the interest charged on the element of the
loan relating to the property, including the incidental cost of
securing the finance. You cannot however, claim for the capital
element of the loan repayments.
• Furniture replacement
If you let a property furnished the Revenue will allow you to make a
deduction for the depreciation and replacement of furniture. There
are two ways in which you can do this.
a) A 10% deduction
A figure calculated as 10% of gross rents receivable (after
deducting council tax and water rates, if paid by the landlord), or
b) The actual cost of replacing the furniture
But not the initial cost of installing the furniture in the property
You need to make up your mind which way to claim when you first let a property, and it will apply for the entire period of your ownership. It usually works out more tax efficient to claim the 10% wear and tear allowance.
If you rent property that qualifies as furnished holiday letting's, that is to say it is let for at least 70 days and is available for letting for 140 days in any one tax year, you will qualify for certain additional tax benefits providing that no single letting exceeds 31 days. Unlike residential and commercial letting's, furnished holiday lets have trading principles applied to them. This means you are able to take advantage of favourable relief for any loss you make on renting the property AND on any profit you make when sold.
If you let rooms in your own house, you will not pay tax if the total rents charged are under £4,250 per tax year!
We can give you advice regarding all tax aspects of buying, selling and letting property. We have only included a few areas for you to consider on this web page. If you are about to invest in, dispose of, or let property do give us a call.
We are a small firm of accountants who focus on small businesses and taxpayers. We can advise you regarding aspects of property tax in order to help landlords.