Capital tips to help you reduce tax expenses

1 IN A NUTSHELL Capital gains tax (CGT) may be payable when someone sells, gives away, exchanges or otherwise disposes of an asset or part of an asset; or receives money from an asset.

2 PROPERTY AND OTHER EXEMPTIONS For most people, the sale of one's main home is the biggest exemption from CGT. Other assets also not subject to the tax are a private car, Isas, UK government bonds, betting, bingo, lottery or pools winnings and personal belongings worth less than £6,000 (at the time of sale).

3 CURRENT CGT Capital gains are currently taxed at 18 per cent. However, each individual has an annual allowance before the tax kicks in – £10,100 in the current tax year. Therefore, anyone who sold a second house or flat this week and made a net profit of £30,000 would be liable for capital gains tax on £19,900 of it and actually pay £3,582 (that is, 18 per cent of £19,900). Of course, selling any other taxable assets during the same tax year would increase liability to CGT.

4 OTHER TAXES While profits from the sale of a main home – no matter how large – are free of CGT, any other income derived from that property (for example, payment of rent if the owner is temporarily not in residence) have still to be declared on the owner's annual tax return and will go towards calculating his or her income tax liability for the current tax year.

5 SECOND HOME CGT is liable on the difference between the purchase and sale price of a second or subsequent residential property. The rate of house price inflation over the period of the gain cannot be used to reduce the paper profit.

6 NOT FLIPPIN' LIKELY Unlike MPs, ordinary members of the public are not permitted to constantly "flip" the designation of their main or second homes, as Hazel Blears allegedly did three times during 2004. Not only would this not be allowed but it may be seen as a means of trying not merely to avoid paying CGT but actually to evade it – which could result in prosecution. You can avoid paying CGT by nominating a second home as your "main" home but when your actual main home comes to be sold, CGT will be payable on any profit above the threshold – so there's no getting away from it.

7 LOSS LEADERS All expenses incurred in the sale of a second property can be set against CGT. These include newspaper advertising, estate agency fees, solicitors' conveyancing costs and stamp duty. But unlike some MPs, you actually have to pay the stamp duty from your own pocket if you wish to obtain any tax relief on it.

8 DOUBLE UP A husband and wife (or two civil partners) can effectively double the annual CGT allowance – one good reason for registering a second property in joint names.

9 TAX-FREE TRANSFER Married couples and civil partners are allowed to transfer ownership of a second property to their husbands or wives (or civil partners) without the recipient becoming liable for CGT.

10 CHILDREN CGT cannot be avoided if you simply pass ownership of a second home on to one of your children, or if you sell to children at a "soft" price; someone will still be liable for CGT when the market value of the property, at the point of sale, is substantially more than its original price. Selling a "second home" to your daughter at a price half its market value – as was allegedly the case with the Norwich North MP, the Scot, Ian Gibson – normally means there will be some liability to tax.


THE SCOTSMAN, 30 May 2009