Tax Planning opportunities for property owners - prior to tax year end 5 April 2006.
Any property disposal by individuals - other than a principal private residence - before 5 April 2006 will be taxed as a capital gain in the current tax year. Tax will become due in most cases on 31 January 2007.
Delay the disposal until after 5 April 2006 and the relevant tax will not be due until 31 January 2008.
Stamp duty considerations (e.g. will it be increased in the March 2006 budget?), and commercial considerations, (e.g. will you lose the sale if you delay?), must of course be taken into account.
If you are buying a property that qualifies as a business asset, and therefore the higher rates of taper relief, there is no advantage in delaying purchase until after 5 April 2006. In fact the opposite position probably applies, that the sooner you buy the sooner you will be able to claim the maximum rate of taper relief.
Properties that do qualify for the higher rates include Furnished Holiday Lets and certain commercial property let to trading businesses and unquoted trading companies. Your own home.
Described by the Revenue as your principal private residence, this will not be taxed when you sell as long as you have used the property for the entire period of ownership as your own home.
But what to do if you either have, or are considering the purchase of, a second home?
If the acquisition will take place, or has taken place, before 5 April 2006 then this may open up the possibility of making an election to determine which property is to be considered your principal private residence for tax purposes. It may also be prudent to plan for a future change in this election that would possibly enable both properties to be sold at a lower tax cost!
As all property income is taxed on a fiscal year basis (to 5 April each year) consider dealing with outstanding repairs before 5 April 2006.
Rents receivable and costs payable
Don't forget that property income is calculated for tax purposes on the accruals basis - in jargon free text this means rents must include rents due but not necessarily received, and costs incurred and/or invoiced but not actually paid. If you have tenants who owe rent but are unlikely to pay, then evidence of the bad debt (copies of solicitors correspondence etc) should be available to justify leaving the income out of your property income on your tax return.
Property is an area of your tax affairs that deserves an annual review. For our clients we need to be aware of your intended acquisitions and disposals, and the uses to which the property(ies) will be applied.