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Cheat Sheet

Understanding and Paying Less Property Tax For Dummies (UK Edition)

Tax pays for the state education system, the National Health Service, the police and the armed forces in the UK. Property tax in its many and various forms is a big part of the overall tax picture. But don’t pay more than you should. Read on to find out more.

Exploding Off-Shore Tax Myths

If someone tells you a foreign company can own your UK property so you can avoid paying capital gains tax by having nominee directors meeting in some far-off country, don’t believe them.

Three simple rules apply to paying tax:

  • If you live in the UK, you must pay tax on your worldwide income and capital gains in the UK.

  • Companies resident in the UK must pay tax on their worldwide income and capital gains in the UK.

  • A company is resident in the UK in either of two circumstances:

    • If it is registered here.

    • If it is registered offshore but management and control is exercised from the UK.

It’s the decisions you make here that count, not those made in your name by some shadowy nominees basking in a sunny tax haven.

Saving Tax by Keeping a Property Register

Property businesses pay tax based on the initial intention behind the purchase of a particular property, so you need some way to record your intention.

Keeping a file for each property, called a property register, helps fireproof you against the taxman by detailing your intentions and decisions. After all, some years down the line, you may have difficulty recalling why some decisions were made, so keeping accurate, written records makes sense.

A property register should contain at least:

  • The statement of purchase from your solicitor showing the buying costs broken down by category, like stamp duty, legal fees and search fees.

  • A note in writing from your buying solicitor clearly showing the completion date – often this isn’t on the completion statement.

  • If paid separately, statements showing any valuation and mortgage costs like broker feeds.

  • During the period of ownership, receipts for any capital spending like the cost of an extension or garage.

  • The statement of sale from the solicitor showing the selling costs such as estate agent and legal fees.

  • A list of owners and their percentage share of ownership.

Capital spending can be set off against any gain made when selling a property, so a property register is important for tax saving in years to come.

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