November 10th, 2014.
Have You Paid Your Property Tax?
“Nothing in life is certain except death and taxes,” said Benjamin Franklin.
And for property owners in North and North West Wales, this statement is being brought into sharp focus through a new initiative by Her Majesty’s Revenue and Customs.
HM Revenue and Customs (HMRC) has launched a new taskforce targeting people who have sold one or more properties and not disclosed rental income or paid Capital Gains Tax, with the goal of recovering £5 million.
Similar property rental task forces operating in London, Yorkshire and South East England have recovered over £12 million, and the task forces are expected to recover more than £100 million by 2015.
The HMRC has invested heavily in computer systems that collate data from a wide array of government sources to enable them to identify property owners to target. However, these systems can be rather blunt instruments that can end up automatically sending heavy-handed letters to property investors who may simply have made a mistake or misunderstood their obligations with regards to capital Gains Tax.
So here’s a quick refresher of the key points you need to bear in mind. Capital Gains Tax is defined as the tax on the profit or gain you make when you sell or ‘dispose’ of an asset. The asset in the context of this blog post would be a property. And so ‘disposing’ of a property would include the following actions:
• Selling it
• Giving it away
• Transferring it to someone else
• Exchanging it for something else
• Receiving compensation for it e.g. an insurance payout should the asset be destroyed
It’s important to note that you are taxed on the gain you make, and NOT the amount of money you make.
So for example, if you bought a property for £100,000 and sold it for £250,000, you would be taxed on the £150,000 profit that you made and not the £250,000 you received; hence why it’s called capital Gains Tax.
Now that example was just a simplistic way of illustrating the point about paying tax only on the gain and not the total sum you receive, but in reality there are factors such as exemptions, annual tax-free allowances; circumstances such as gifts, divorce and inheritance, and a number of others.
If you want to ensure you don’t fall foul of this new HMRC initiative, it may be wise to schedule an appointment with your financial advisor.
This specialist will be able to look at your records, tell you exactly what you need to do, and help you put in place a system for dealing with the issue of Capital Gains Tax as simply as possible – helping you enjoy your life without fear of the tyranny of taxes.