Property Developer: Capital Gains Tax Explained

Property Developer: Capital Gains Tax Explained

One of the largest impacts on your overall profit is the payment of capital gains tax to HMRC. This is a tax levied on all properties that are not your main residence. So this doesn’t just affect Buy to let’s but also 2nd homes and holiday homes anywhere in the world (you can currently nominate which property you wish to class as your main residence, within 2 years of the latest purchase).

You will always have to pay capital gains tax on an investment property, and tax is charged between 18% and 28% on the profit you make on the sale. However, you do have an allowance of £11,700, which means you won’t pay any tax on the first £11,700 profit you make.

If you purchase the property jointly then you both receive this allowance, thus increasing this to £23,400 before paying any tax!

Contrary to common belief you cannot roll this allowance to the next tax year, if you do not use it in a tax year it is simply lost. And other gains will be offset against it too (for example, if you make a gain on the sale of shares in the same tax year). Careful tax planning should be undertaken to limit your tax liability!

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Please note this article is not intended as advice in any way, and should not be construed as such.

*Your House may be repossessed if you do not keep up with your mortgage repayments*