Property tax isn’t just a numbers game—it’s a crucial part of owning real estate.

Whether you’re managing rental properties or building your investment portfolio, understanding the ins and outs of property tax is essential.

Selling your property business? – Here’s what you need to know about Capital Gains Tax

Capital Gains Tax (CGT) is the tax you pay on the profit you make from selling your business, not on the entire amount you receive from the sale.

Rebecca Hurford, Tax Partner at Watson Buckle says, “When you’re selling a property portfolio, navigating Capital Gains Tax requires careful planning to ensure you’re not overburdened by taxes on your hard-earned profits.

“It’s not just about what you receive from the sale – it’s about maximising what you keep.”

Currently, CGT rates stand as follows:

• 10 per cent (18 per cent for residential property) on the entire capital gain if your total annual income is below £50,270.
• 20 per cent (24 per cent for residential property, reduced from 28 per cent in the Spring Budget) on the entire capital gain if your total annual income exceeds the £50,270 threshold.

The start of the 2024/25 financial year saw the Capital Gains Tax (CGT) Annual Exempt Amount drop to a historic low of £3,000, down from £6,000 the previous year.

Business Asset Disposal Relief (BADR), formerly known as ‘Entrepreneurs Relief’, offers a reduced CGT rate for eligible business disposals, offering substantial savings when you sell an asset.

BADR is exclusively accessible to individuals engaged in business who are disposing of a business asset. This disposal could involve selling an entire business or selling shares.

With BADR, you are subject to Capital Gains Tax at a reduced rate of 10 per cent on any profits earned from disposing of qualifying business assets.

This reduction is particularly advantageous for higher-rate taxpayers, as it halves the CGT rate from 20 per cent.

CGT on disposal of property must be filed and paid within 60 days following the completion date of the disposal.

What are the benefits of incorporating a property portfolio?

Incorporating your property portfolio into a company structure can offer you significant tax advantages, mainly because of how taxes differ between limited companies and individual landlords.

Rebecca says, “Incorporating your property portfolio can lead to substantial tax savings and enhanced liability protection, making it a wise move for long-term investors.”

If you’re considering incorporating a property portfolio into a limited company, there are a few things you need to know.

Owning your portfolio through a company, rather than personally, can offer significant tax reliefs – including the ability to claim a 100 per cent relief on mortgage interest payments.

Rather than paying Income Tax or CGT on your profits and gains, you will be charged Corporation Tax instead. This is typically a lower rate, meaning you get to retain more of your profits.

Additional benefits include:

• More tax-efficient remuneration planning
• Reduced tax liabilities on property sales
• Effective strategies for pension planning
• Better liability protection for the business owner, separating personal assets from business risks.

Disadvantages to incorporating

In addition to the benefits, there are also downsides to incorporating a property portfolio you’ll need to consider.

Sometimes the costs involved can outweigh savings.

There are various administrative costs of setting up and running a limited company.

So, in addition to needing to pay these costs, you will also be spending time and effort filing yearly accounts, Companies House statements and Company Tax Returns, among others.

If you transfer your admin responsibilities to an outsourced accountant, you will be subject to additional costs.

When incorporating, you’ll be liable for Stamp Duty Land Tax (SDLT) and CGT based on your property’s current market value.

Although Incorporation Relief can postpone these costs, landlords with fewer properties may not meet the criteria to be considered a business, significantly raising the initial expense of transferring assets to the company.

Additionally, limited companies must pay a three per cent surcharge on SDLT for residential properties.

For advice on Capital Gains Tax and your liabilities, please get in touch with our team today.