When you are buying a new house when you already own one you have to think what are you going to do with your house you were living in. If you are a UK resident and this was your main house which you were sharing it with your spouse( in that case it will be the main residence for both of you)and you are buying another one you have to think tax wisely. Do you want to keep your old home? Rent it? Or sell it?. The timing of everything is very important here. And there is no definite answer as to what will save your tax costs. It all depends on your personal situation so it is best to talk to an expert accountant who can give you a personalised advice. If you are buying a new house and not selling the old one because you might be thinking of putting it on rent in the future you are likely to consider the following taxes:
- Capital Gains Tax
- Stamp Duty Land Tax
- Income Tax
Capital Gains Tax:
You will have to pay capital gains tax when you sell property which is not your main home, it’s used for any commercial purposes and you are letting it.
So if you buy a new house before selling the old one you will face CGT in any gains that you will make.
Although you won’t get a full private residence relief which you get when selling property which is your main home, you will get a relief for the last 9 months that you lived in that property.
The higher or additional tax payers will pay 28% on the gains. If you fall within the basic tax band after deducting your personal allowance of £12 570 and tax free allowance of £12 300 you will be paying 18% on the residential property.
Stamp Duty Land Tax:
You will have to pay Stamp Duty Land Tax if you are buying a property for more than £125 000.
The first time buyers get a relief on SDLT as well but since in this case you are not a first time buyer you won’t get that relief.
This tax needs to be paid within 14 days of completion, a solicitor will usually do this for you however, if they don’t do it then you will have to file a return and pay the tax. If you don’t do this within 14 days of completion you might face a penalty.
Income Tax
If you receive rent from your property and you are making profit you will be paying income tax on it. To calculate the taxable profit you will deduct all the allowable expenses from your rental income, deduct your personal allowance if it’s not being used up against your income from other sources and also don’t forget to deduct property allowance. Property allowance is the allowance which you will get on your income from your property. Currently it is £1000.
You will report and pay your rental income in the self assessment tax return which will be filled and submitted online by 31 Jan of the following year.
Once you have calculated your capital gains tax, if you have sold your property on or after 6 April 2020 you should report and pay the tax to HMRC within 30 days.
If you want to let your property for rent or sell your property and you are concerned about the tax implications you should go for professional advice. We at Taxaccolega can provide you with tax advice on your property matters. Call us at 020 8127 0728 or drop us a message here and our specialised property accountants in Croydon, London will be happy to help you.