PRESS RELEASE: 3 February 2003

£800 million capital gains tax liability

JoJaffa Ltd, publishers of Property Tax Secrets, estimate that if everybody who purchased an investment property three years ago sold it today, the Inland Revenue would be richer by about £800 million in Capital Gains Tax liability. It comes as no surprise then that TaxationWeb, UK online tax information directory, reports that three quarters of all queries on their Tax Tips Forum are with regards to CGT on property?

"The recent boom in the property market and low mortgage rates encouraged many ordinary people to start thinking about investing into a second property, either to renovate and sell, or buy-to-let," says Martino Matijevic of TaxationWeb. "We are becoming inundated with questions from people thinking of selling their properties and have suddenly became aware of the tax implications of their investment. CGT questions have now become the single most common topic on our Tax Tips Forum."

From the tax point of view, there are many issues to be considered when buying or selling a property. Amer Sadiq, the author of Property Tax Secrets, outlines 7 key steps to help investors and developers cut property tax bills.

Firstly, consider buying property jointly with your partner to potentially use both your Capital Gains and Income tax allowances. Even better, renting out your existing property might help you to benefit from a whole raft of capital gains allowances.

If you buy property to 'renovate and sell', then you will be taxed differently than if you only 'buy and let' property. For instance, if you buy and sell property, your gains may be taxed as Income rather then Capital Gains. This means that you need to establish how and which taxes (Income Tax and/or Capital Gains Tax) will be applied to your property investments. Once you know how tax will be assessed on your investments, then - and only then - can you establish a tax minimising strategy.

Offset as many costs against your rental income as possible, to genuinely reduce your bill. Many people are not aware of the numerous costs that can be offset against your property income. For instance maintenance insurance policies on white goods, gas boilers and plumbing cover, which insure your property against any leaks or problems, can all be offset against rental income.

In 2020, the average house is predicted to cost £330,643. This will create an Inheritance Tax bill of £32,257.20 for the property alone, if allowances continue to stand still. It also means that the inheritor may be forced to sell the family home in order to pay the tax! Many people are using trusts and gifting options to reduce their potential liabilities to this tax.

Poor tax planning and accounts management means bigger accountancy bills - sooner or later. By learning about Property Tax early on in your investment career, you can not only reduce your tax bill, but also by presenting better accounts, you will cut your accountancy bill too. What is more, the better informed you are about tax - the better questions you can put to your accountant, and the better answers you'll receive.

Make sure you tell the taxman that you are receiving income from property. If you don't tell him now, then when he catches up with you, you probably won't be able to afford to pay him, after he fines you!

And finally, many tax benefits require the investor to plan for tax ahead of investing. Hence, the sooner you tackle the issue of Property Tax, the more you'll be able to cut your tax bills and liabilities.

If you have any questions on property tax, visit www.taxationweb.co.uk, where you will find a host of articles, news updates, and you can participate in the Tax Tips Forum, where taxpayers and tax professionals exchange questions and answers. For the Property Tax Secrets book, visit www.taxationweb.co.uk/propertytax.

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