Avoiding Capital Gains Tax???

the_bathroom_doctor_2

Hello,
Me and my wife are considering investing in a second property in the next 6 months or so, to possibly rent out/sit on for a few years as an investment. The question I have is this. Is there a way to buy this property and perhaps another later on with a mortgage, but in a way that we avoid paying capital gains tax if we sell later down the line.
I have been told that if we were to set up a property business, we can avoid this, is this true? Or is there someone out there who can point us in the right direction.
Many thanks in advance.
Darren.

Max_Headroom_3

I suspect buying a property within the next six months or so will be an absolutely excellent way of avoiding all capital gains tax...

Premier_2

If you buy the properties within a corporate structure, the good news is that you avoid any CGT since this only applies to individuals.

The bad news is that you'll be faced with a similar charge for corporation tax on chargeable gains should you sell the property for profit.

Furthermore, you would probably have to finance the deal on a more expensive commercial mortgage rate as most BTLs exclude purchases by companies. There may be the odd lender or two who will entertain such loan, but whether they will lend to a newly formed company with little or no trading history is unlikely.

I would suggest buying in your own name and using an accountant to explain how to limit any CGT liability

rjm2k1

CGT is probably the most complex tax going, you need to see a specialist to make sure everything is set up correctly. When I looked into property investing I found this website which has some useful articles which should illustrate that you need proper advice... http://www.property-tax-portal.co.uk/property_tax_articles.shtml NB I am not affiliated with this site at all, but I did find it useful. I decided against investing in property at the time.

keeprenting

the_bathroom_doctor wrote: »

Hello,
Me and my wife are considering investing in a second property in the next 6 months or so, to possibly rent out/sit on for a few years as an investment. The question I have is this. Is there a way to buy this property and perhaps another later on with a mortgage, but in a way that we avoid paying capital gains tax if we sell later down the line.
I have been told that if we were to set up a property business, we can avoid this, is this true? Or is there someone out there who can point us in the right direction.
Many thanks in advance.
Darren.

Further to previous answers:

1) Capital gains tax is, as the name implies, charged on "gains." If you invest in a second property in the next six months, it is likely to decrease in value for the first few years and unlikely to recover its value for several years after that. You will not pay CGT if you sell at a loss.

2) "I have been told that if we were to set up a property business, we can avoid this, is this true?" I'm not sure what you mean by this. If you buy a flat and rent it out, you will inevitably be treated as having set up a property business for tax purposes. However, you will still be charged to CGT should you realise a gain on sale of the property. By "set up a property business," do you mean hold the property through a company? If you hold the property through a company, you would not pay CGT on any gain but the company would pay corporation tax (and probably at a higher rate) and you might also pay capital gains tax when you dispose of the shares in the company. In other words, there would be a risk of a double charge to tax on the same economic gain.

3) One way of avoiding a CGT charge would be to set capital losses against any gain. This would be possible if you have sold another investment at a loss (and not offset that loss against another gain for tax purposes). Failing that, it seems likely that if you sell the property at a gain, to avoid tax you would need to enter into a tax avoidance scheme (a clever but legal way of dodging the law). You would then have to pay advisers' fees and face the risk that the scheme does not work.