Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
When you make a profit on the sale of something (also known as disposing of an asset), the amount you’ve gained above the previous value is subject to taxation in accordance with Capital Gains Tax.
You might think that selling your home would be a prime time to be subject to an unexpected tax bill, but there are a few different ways to ensure your tax bill is as low as it can go.
Capital gains allowance
Your first opportunity to save thousands in tax is to utilise your full taxpayer annual allowance of £11,700.
You may have other ventures providing you a healthy return, and in that case it’s prudent to consult a financial advisor to plan how and when you receive the gains to see if you can remain under the maximum limit.
If you have a spouse, you are able to divide your assets strategically so you both reap the full benefits of the allowance.
Private Residence Relief
There are very specific circumstances in which you do not have to worry about paying Capital Gains Tax upon selling your home. By meeting all of the qualifications, you automatically receive Private Residence Relief.
According to Gov.uk, the conditions you need to meet are:
- you have one home and you’ve lived in it as your main home for all the time you’ve owned it
- you haven’t let part of it out – this doesn’t include having a single lodger
- you haven’t used part of it for business only
- the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
- you didn’t buy it just to make a gain
There are certain periods during occupancy when you do not have to fully and faithfully live in your home, such as in the first 12 months if you couldn’t move in right away, and the last 18 months (36 if disabled) of your time in the home.
Other periods of absence that don’t need to be considered are any time working abroad, up to four years working away from home but still in the country, or for any reason for up to three years, cumulatively. In these cases, you must always return to your home.
Lettings Relief
While Private Residence Relief is a huge help if you’ve maintained full residence in your home, Lettings Relief is available for those taxpayers who used the home as their main or only home at one point, but have also rented it out for residential accommodation. The reason for letting out your property must be an absence that is not covered by the Residence Relief habitation rules.
Your relief will be one of the following: the private residence relief amount, the gain in the rental period, or £40,000 – whichever is lowest.
You can work out your gain from details of the sale, such as the initial purchase price and eventual sale price of the property, costs incurred during purchase or sale, and any improvements made. Expect your gain to be taxed at 18% up to the basic rate band and as much as 28% after that.
Capital Gains Tax is one piece of tax legislation that can be responsible for carving out a bigger chunk of your assets than is necessary. You can do your part in keeping the tax you may owe to a minimum by taking advantage of the capital gains allowance or qualifying for Private Residence Relief or Lettings Relief.
The aim of the experts at Dental and Medical Financial Services is to provide guidance based on your full financial picture to reduce your tax burden wherever possible.