Today, it is not uncommon for people to own more than one property – whether it's for business, personal or investment purposes. Some acquire a second property as a result of inheritance or marriage.
Whatever the reason, property investment and ownership requires a great deal of understanding of how the UK tax system works. There are, after all, a number of different taxes that apply to multiple property holders. These include council tax (residential), business rates (commercial) and Stamp Duty Land Tax (SDLT), which applies to all property purchases in England, Wales and Northern Ireland.
The first two are simple enough, but when it comes to SDLT, higher rates apply when an owner purchases a buy-to-let or a second residential property – thanks to reforms that came into action on 1 April 2016, these rates are now an extra three per cent above what they used to be. As such, the new additional property SDLT rates are three per cent between £0 and £125,000, five per cent between £125,000 and £250,000, eight per cent between £250,000 and £925,000 and 13 per cent between £925,000 and £1.5m. Anything above that price is subject to 15 per cent SDLT.
As it stands, all married couples and civil partners living together are considered to be a unit, which means any additional homes purchased by either partner counts as a taxable property, regardless of whose name is on the contract. However, if the spouse sells the residence within 36 months, they may be eligible to claim a refund on all tax paid during that time.
Parents wishing to purchase property for their children to live in are affected now as well, even if the home is bought with both parties' names on the deeds. Thus, if you are looking to make a future investment for your family or use this as a way of extending your property portfolio, it may be worth considering buying the residence in your child's name. There are, of course, always exemptions to the rule, so if you are looking to purchase property worth less than £40,000 – a doer upper perhaps – a caravan or houseboat, SDLT does not apply.
SDLT applies to commercial properties too, so if you are a practice owner or looking to make the move into buying your own business, you will be required to pay up to five per cent on that as well (if the market price is over £250,000, which it is likely to be).
Another financial implication of owning multiple properties is Capital Gains Tax (CGT), which is a levy on the profit that is made when a property is either sold or disposed of – for example, giving it away as a gift or transferring the ownership to someone else. Due to Private Residence Relief, CGT doesn't apply to single home owners (as long as they meet all the criteria) but if you are looking to add to your property portfolio, you will be required to select a 'principal private residence', which will be tax-free. With this tax relief, it can be prudent to elect the property that is expected to make the most gain – that way, you can minimise the charges that you will be expected to pay. Again, there are stipulations, one of which is that married couples or civil partners can only nominate one main home between them, whereas unmarried couples can each nominate a property.
Another available form of relief that can be advantageous to multiple property owners is the Rent a Room relief scheme, which provides tax exemption on the first £7,500 of your rental income. It is worth noting that expenses can be claimed back on residential lettings and furnished holiday lets, so it is always wise to consider your options.
For landlords letting residential property, a levy is applied to anything that is earned – this is known as Income Tax. Although this is yet another outgoing, there is a way that the overall net profile can be reduced (if you have or will have several properties that are let out). All you need to do is total all of the expenses from all properties as if it were one business. That way if one particular property has significantly less expenses than another, you can offset a loss from one against the profit from the others. Renting out property also has National Insurance implications, so be sure to reference www.gov.uk and contact HMRC to ensure that your contributions are correct.
Altogether, there are a number of taxation ramifications for owning more than one property, most of which require a great deal of understanding, time and tax planning. To alleviate some of the pressure as well as save money, it can be prudent to enlist the services of an Independent Financial Adviser such as those at the expert firm money4dentists. After all, owning, managing and investing in property is difficult at the best of times, so why not make it easy when it comes to your taxes?
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