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Our tips on managing your tax bill on buy-to-let property

Selling your buy-to-let? Here's how to reduce your tax bill

By Maurice Shasha  //  Mon 22nd May 2017
If you're thinking of selling your buy-to-let property, there's no point in paying more tax than you need to. Here's some tips on how to reduce your tax bill.
The tax changes introduced on buy-to-let investments are making many landlords think about selling their properties.

Buy-to-let owners who have a have a large mortgage on their property and are higher-rate taxpayers are seeing an increase in their tax liability. Some basic rate taxpayers may be pushed into the higher tax bracket by the changes, and they too will see an increase in their tax liability. This tax change could lead some landlords to see their investment become financially unviable.

The only alternatives open to landlords is to increase their rents or sell up. Many are taking the latter way out. But selling a buy-to-let property could leave landlords open to Capital Gains Tax (CTG) on any profits made from the sale.

How CGT is applied
Capital Gains Tax is applied to any profit you make by selling certain assets, but the CTG on profits you make on property sales is higher than profits you may make on the sale of other assets. CTG only applies when you sell a property that is not your main residence, and the rates vary depending on which tax band you are in.

If you are in the basic tax band, you will pay 18% CTG on any profits from your sale. If you are in the higher tax band you will pay 28%. However, as with other forms of tax, there are complications. If the profit you make lifts your income above the basic threshold, some of your profit will be taxed at 28%.

However, there are some steps landlords can take to ease some of the CTG burdens.

Your tax-free allowance
Everyone is allowed a tax-free allowance. In the tax year 2017-2018, it is £11,300. This means you can reduce your CTG liability by deducting that from any profit you make on the sale of your property. If the property is jointly owned by you and your spouse, you can use their tax allowance to reduce the tax liability even further.

Your pension
If you are making pension contributions worth up to £40,000 a year, this contribution attracts tax relief. By making a lump sum payment into your pension, you could reduce your CTG liability. But you will only save a maximum of £4,000 using this method.

Invest in shares
Another way to offset or delay paying CTG is to use an investment vehicle. This can be achieved by investing the gain they have made in Enterprise Investment Schemes (EIS). This scheme offers income tax credits or the opportunity to postpone paying CGT by buying shares in small, unlisted companies, often start-up companies. To take advantage of this scheme, you must subscribe to an EIS either 12 months before or 36 months after the sale of the relevant property, and you must hold EIS shares for three years.

A word of warning, investing in EIS can be very risky, and are really only for investors with experience and a diversified portfolio.

Help
Capital Gains Tax, like any other tax imposed by HMRC, is full of exemption rules and other complications to trap the unaware, or those inexperienced in tax affairs.

The tips we have outlined above are just some of the methods you could call on to reduce your CGT. But we strongly recommend you seek the advice of a financial advisor or an expert in taxation before you try these, or any other schemes, to try to reduce or defer any CGT.

If you need advice on CGT, or any of the other facts regarding the new tax changes on buy-to-let properties, we will be happy to help you. We will also be able to help if you decide to sell your property. Why not contact us today?

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