How to Avoid Capital Gains Tax on Property?
Oct 03, 2024
“Discover the ways to save capital gain tax on property”
Capital gains tax is a major tax associated with property selling and has to be paid by a seller. The tax is levied on the profit from selling a property such as a house, land, commercial or rental property. The taxable gain is calculated using the difference between the purchase and selling prices. The entire taxable income and the individual tax bracket determine the capital gains tax rate. When selling a home in the UK, taxpayers must pay capital gains tax, which ranges from 18% to 28%. However, several means and ways can be employed to minimise or avoid this capital gains tax. Discover some strategies for avoiding the capital gains tax in this blog post.
Strategies to Avoid Capital Gains Tax When Selling a Property
From capital gain tax allowance to private residence relief and multiple ownership to gift transfer, several methods can be utilised to avoid the capital gains tax. Explore some of the common techniques to save capital gains tax.
Annual CGT Allowances
In the UK, every taxpayer is eligible for availing of an annual capital gains allowance. The annual CGT allowance can be up to £3,000 and a taxpayer can write off this amount against the taxable income. So, using annual CGT allowances is the one simple option to minimize the capital gains tax.
Principal Private Residence Relief (PPR)
You may be eligible to avoid paying capital gains tax on the proceeds from the sale of your primary house in the UK by taking advantage of the Principal Private House Relief (PPR) tax exemption. You must have resided in the home for at least 18 of the 24 months prior to the sale in order to be eligible for this relief.
Gift Property to Spouse
Inter-spousal transfer is eligible for capital gains tax exemption which means transferring your poetry to a spouse or civil partner can help you to save on capital gains tax. Spouses can double their annual tax exemption allowance to minimise the capital gains tax to a large extent.
Reduce Overall Taxable Income
Another way to save on capital gains tax is to reduce the overall taxable income as the CGT is added on top of income tax. Taxpayers can use several means to reduce taxable income including contributions to retirement plans, showing children's expenses, and medical or other deductible expenses.
Entrepreneurs' Relief
If you have operated a business out of the property for a minimum of two years, you can be eligible for entrepreneurs' relief. As a result, the capital gains tax rate on gains up to £1 million is lowered. On qualifying gains, the capital gains tax rate is lowered from the standard rate of 18% or 28% to 10%.
Multiple Property Ownership
In the UK, a tax benefit called Multiple Property Ownership Relief can lower the capital gains tax (CGT) due when a second or subsequent property is sold. You have to have resided in one of the properties as your primary residence for at least four years before selling it to be eligible for this relief.
In summary, capital gains tax is a property tax charged on the profit made from the sale of an asset. A taxpayer can utilise several methods to minimise or avoid this tax. Using annual allowances, transferring property to a spouse, multiple ownerships, and entrepreneur reliefs are some ways to deduct the capital gains tax. For selling or buying properties across the UK or elsewhere in the world, turn to estateagentpower.com
