Property taxation is often changing and updating, and includes specific taxes, such as Capital Gains Tax (CGT), Corporation Tax, and Income Tax on rental earnings.
Each year can bring some changes, and with 2024 bringing an adjustment of CGT rates for residential property disposals, understanding the impact of these taxes is crucial for property owners.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- The differential impact of Capital Gains Tax on individuals, trusts, and companies.
- Upcoming changes to CGT rates for residential property gains.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is a significant consideration for UK property owners, irrespective of their residency status.
The tax is levied on the profit realised from the sale of property not classified as the owner’s main residence.
Individuals face CGT rates of 18% (basic rate taxpayers) or 28% (higher rate), with a notable reduction to 24% for higher-rate taxpayers effective from April 2024.
Trusts are subject to a flat CGT rate of 28%, whereas companies are taxed on gains under Corporation Tax rules instead.
These are currently at varying rates from 19% to 25%, dependent on profit levels.
Corporation Tax & Rental Income
Rental income is taxed differently based on the entity type.
For individuals, it falls under Income Tax, while companies pay Corporation Tax on rental profits.
The complexity increases for companies owning property, as they must navigate the main rate increase of Corporation Tax to 25% for profits exceeding £250,000, with marginal relief provisions softening the transition for profits between £50,001 and £250,000.
Strategies for Property Tax Planning
A significant opportunity arises with the upcoming reduction of the higher CGT rate from 28% to 24% for disposals of residential property beginning April 2024.
Furthermore, the capital gains tax allowance for the 2023/2024 tax year is set at £6,000, which will decrease to £3,000 in the 2024/2025 tax year and further to £1,000 in the 2025/2026 tax year.
This period offers a strategic window for property owners to potentially sell assets tax-free up to the first £6,000 of gains.
Considering the allowance’s upcoming reduction, acting quickly could be advantageous, particularly for those planning to dispose of properties with gains exceeding the current allowance.
Maximising this benefit may involve strategising the timing of sales to align with these changes in taxation and allowances.
Non-Residential Property Taxation
The taxation framework for non-residential property is distinct, with individuals and trusts paying CGT at 10% or 20%, and companies applying Corporation Tax rates to their gains.
The approach underscores the UK’s complex tax system, addressing different property types and ownership structures.
The Challenge of Indirect Disposals
Non-residents holding a significant interest in property-rich entities face CGT on indirect disposals, emphasizing the broad reach of the UK’s tax regime.
This measure targets gains derived from substantial investments in entities primarily dealing in UK property, ensuring taxation on gains realised through indirect ownership.
Summary
With imminent changes to CGT rates and the recent hike in Corporation Tax, property owners and investors must stay informed to navigate these changes effectively.
Whether you’re grappling with the specifics of CGT adjustments, exploring tax planning strategies, or simply seeking clarity on how these tax shifts might affect your property portfolio, expert advice can make all the difference.
www.taxexpert.co.uk is the advice that you need. Contact us today for personalised advice and support tailored to your unique property tax needs.
Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.
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Kind regards,
Ilyas Patel