Tax dodge of the week: slash your CGT bill to zero
Britain’s estimated 600,000 buy-to-let investors and second-home owners were “handed a potential £4bn tax boost” in last week’s Pre-Budget Report, says Clare Francis in The Sunday Times. From 6 April 2008, taper relief will be abolished and capital gains tax (CGT) charged at a flat rate of 18%. This will save sellers an average of more than £6,000, and with a bit of extra planning, you could reduce your CGT bill to zero.
At present, taper relief kicks in after three years of ownership, reducing the taxable gain by 5% a year, down to 60% after ten years. This reduces the effective rate of tax to 24% for higher-rate taxpayers (which most property investors are), meaning anyone selling after next April will be paying between 6% and 22% less in CGT, depending on how long they have owned the property.
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To reduce this further, transfer half the home into your spouse’s name to make use of two CGT allowances (worth £18,400) and nominate your second home as your principal private residence. You only have to live in the second property for a week for it to qualify, and once you switch the nomination you will not be liable for CGT for the last three years of ownership.
