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FRIDAY FEATURE: How best to sell my property portfolio for tax

As a medical or dentistry professional, you may have invested some of your money into a property portfolio. This week’s Friday Feature focusses on the most tax efficient way to sell some or all the properties that are held in the portfolio.

The views expressed in this article are specifically those of Lansdell & Rose Accountants.

Knowing how to make an exit is essential

As a buy-to-let landlord it is essential that you have an exit strategy i.e. a plan that details what you will do when it comes to selling these properties.

There may be differing reasons why you want to sell, for example you may want to re-invest the money elsewhere, you may need the money for your retirement or you may want to take a career break and need some money to fund this.

Planning your exit strategy early will enable you to get the best return on your investment.

Selling is not straightforward

Selling a property is not as easy as putting up a ‘For Sale’ outside the front door. The housing market is weakening, particularly in London and the South-East. House prices have been stagnant for several months. And they have only just started to show signs of improvement.

For buy-to-let landlords this means that selling properties is not an easy task. If you are thinking of selling some of your buy-to-ley properties in the next coming years or months, you need to start thinking of your exit strategy now.

What to consider

Capital Gains Tax

Capital Gains Tax (CGT) is the tax you pay on the profit of the ‘asset’ you have sold or ‘disposed’ of.

If you sold a property for £350,000 and you originally bought it for £150,000, CGT will be applied to the £200,000 profit you have made.

Mortgage Interest

From April 2017, the government introduced measures that restricts the relief that landlords can claim for on finance costs on residential properties. Finance costs include things like mortgage interest, interest that is applicable to loans that were taken out to buy furnishings and fees that a landlord has incurred when taking out or repaying a mortgage or a loan.

This relief cut back means that landlords in the near future will face paying higher taxes.

Inheritance Tax

For landlords that are married the portfolio could be passed onto their spouse, tax free.  For landlords that are not married, upon death, the value of assets above the threshold of £325,000 will be taxed at 40%.

Best solution 

It may be better for some landlords to move the ownership of these properties over to a company. By doing so the landlord may qualify for ‘holdover relief’, but only if the landlord can prove that the property portfolio is run as a business.

It is advisable to gain professional advice first, as this is considered a ‘grey area’ in tax.

If ownership is transferred to a company, the rental income and capital gains in the future sales will be taxed at 19%.

Corporation Tax will need to be paid on any money withdrawn from the company. If large amounts of money are withdrawn in one year, this may push you up into a higher tax band.

It’s important to note that if the portfolio is transferred over to a limited company, the properties will be subject to higher Stamp Duty Land Tax which is calculated on the current market value of the property.

However, Multiple Dwellings Relief  could apply if the properties were transferred over in a single transaction.

By clicking the link above you will depart from the regulatory site of Dental & Medical Financial Services. Dental & Medical Financial Services is not responsible for the accuracy of the information contained within the linked site.

Read other tax features by Lansdell & Rose:

5 reasons why your business is better with Xero
Add your children as shareholders and save tax
How to invest tax efficiently in a new business

Dental & Medical Financial Services work alongside many healthcare specialists to give you access to the best advice.

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