Property can be a very attractive investment. Quite apart from the home you live in, you might be looking at a model where you buy, renovate and sell, making a substantial profit. Alternatively, you might prefer a longer-term investment that generates a regular rental income.
Like any income-making model, though, it’s going to involve paying tax on your profits, but this can be a tricky area to navigate. So, what do you need to know about Property and Tax?
Do I Need to Register for Self-Assessment if I Have a Property?
In general, anything you do that generates income is potentially taxable, and unless it’s covered by a PAYE code, that means registering for Self-Assessment.
This doesn’t apply if the property’s your primary residence and doesn’t generate income. If you get more than £1,000 a year in rent, however, you’ll need to register and declare the income in your Tax Return.
This also applies if you sell a property that isn’t your primary residence, whether this is a quick turnaround or whether you’re selling after many years of using it for rental income. The sale will be subject to Capital Gains Tax (CGT), so you’ll need to submit a Self-Assessment Tax Return declaring it.
What Happens if I Co-Own the Property with My Spouse?
If a property is co-owned by spouses, the default position is that it’s owned 50/50. This means that you should both register for Self-Assessment, as long as each share of the income is more than £1,000. You’ll be equally liable both for income tax on rental income and for CGT if you sell it.
If you want to change the split, you’ll need to register a Deed of Variation and a Form 17. This might be an advantage if one of you is on a higher rate of tax for your other income, while the other is on the basic rate, meaning the lower-rate partner will pay less tax.
It’s important to bear in mind, though, that a Deed of Variation and Form 17 takes some time to set up. You’ll need to start the process well before the deadline for your Tax Return.
Is It Better to Buy a Property as an Individual or a Limited Company?
If you’re buying a property, you can do so either as an individual or through a limited company, and which is best depends on your situation. If you’re buying it as your primary residence, then it’s normally best to buy as an individual, but otherwise there are pros and cons on both sides.
• Stamp Duty Land Tax — A limited company must pay a higher rate, with a 3% surcharge for extra properties.
• Ongoing Tax — Tax filing is simpler as an individual, but personal tax could be up to 45%, whereas a company will pay Corporation Tax at 19%-25%. On the other hand, any personal withdrawal of profits from a company (e.g., dividends) are subject to additional taxes.
• Mortgage Interest Relief — A company can claim full mortgage interest as a relief, whereas an individual can only get 20% tax credit.
• Administration Costs — There’ll be admin costs for running a company, which doesn’t apply to an individual.
• Flexibility — Buying through a limited company gives more flexibility for reinvestment, making it easier to scale your property portfolio.
What’s the Position if You Sell a Property Abroad?
If you’re a UK resident, you’re liable to pay Capital Gains Tax on gains worldwide, including sales of property abroad. You’ll need to use forms SA108 (for CGT) and SA106 (foreign income) along with your Tax Return. This will be charged at either 18% or 24% (2024/2025 tax year), depending on whether you pay basic or higher tax.
You may also be liable for CGT in the country where the property is located. If the UK has a Double Tax Agreement with the country where you’ve already paid CGT, you may be able to claim a Foreign Tax Credit Relief in the UK.
How to Get Help with Property Taxes
Taxation on property can be a minefield, and HMRC aren’t going to be forgiving if you get it wrong.
For expert help, phone or email Grace Certified Accountants to find out how we can steer you safely through.