Capital gains tax is usually a tax based on the capital gains of property sale. The profit which is realized by the sale of this property results from the sale of the properly at a higher amount than the property was bought. The main basis of capital gains tax is taxation of these properties. To a great extent, this form of taxation can be minimized by property owners to enhance more economic lifestyle for these owners. Property is the most common means of realizing capital gains tax in the United Kingdom. Also, capital gains tax is collected from individuals who are residents in the United Kingdom.
Minimising Capital Gains Tax
In a case where a building has caught fire and the insurance firm makes compensation, the gains made by that compensation are liable to taxation of capital tax gains. To avoid taxation on the basis of such grounds, it may be necessary for the property owner to prove beyond doubt that benefits from compensation did not account to a profit. Carrying over capital losses of the property by owners may be a way that can be highly instrumental in saving their gains from taxation (Fisher 2010). This is because the capital tax gains deduct tax only from the property that incurs profits and not heavy profits. Therefore, real estate firms should consider taking an overriding consideration on the losses incurred. The losses incurred from time to time may be the first step in saving these investors from capital gains tax. In case of real estate firms, the amount of money that is gained from their investment on the property is usually taxed. This means that information about several tax clauses makes it truly possible for the property owners to minimize or entirely avoid the capital gains tax (Lowe 1940).
To avoid taxation, the property owners should also consider exchanging their property for another property. This creates an arguable scenario since preferences of two owners of the property to be exchanged could be coincidental. For example, the property owners may exchange lands that are not of the same value, just because one of them likes the location of the exchanged land. Also, exchange of property that is not so easy to conduct a valuation for is a possible way to minimize the capital tax gains. To minimize the property gain tax, the property owners should also consider taking advantage of the tax exclusion (Cordes 2005). The property tax law provides for exclusion of capital gain tax for the sale of a residential place where a person has stayed for at least two years. According to this clause, the house must cost up to $ 250,000. On the sale of primary residence, the married people also have an advantage. This is because they can enjoy exclusion of up to $ 500,000. Even if the owners of the residence do not meet the ownership and use tests they still can enjoy exclusion of $ 250,000. Therefore, the property owners should consider consulting the property tax law professional for a considerable advice from the field of capital gains tax (Staples 1984).
To get an exemption of the long term capital gain, property owners may also purchase a new house within the time frame that has been stipulated. This is normally within the period of two years after transfer of the original house. The construction of new house needs to be completed within three years after transfer of the original house. To avail this exception, the owners who do not wish to make or construct their own property may also choose to book a house which is already under construction. This avails the provision of deduction of the capital gain tax. Therefore, the owners should always seek to look for cheaper options to pay fewer taxes and improve their performance in the daily life expenses. In cases where the property owners buy discounted property, there is a tax implication that seeks to reduce the capital gains tax. The capital gains tax gets minimized for the seller of the property since he has to make some deductions to the customers. Therefore, a witty way to reduce the capital tax gains during the sale of a property is the use of discounts to the clients. Good relationship between clients and the property owner may trigger the owner to provide a discount. This leads to a minimized capital tax gains for the property on sale (Hodgkinson 2007).
In a case where a person had lived in a house previously when the house prices were lower, and he or she buys another house three years later, the house bought later remained vacant for three years, and the couple wanted to sell it afterwards. The predicament arising with this case is the fact that the couple had not benefitted from the house in any way. This is because the house had been empty for some time after being purchased. The couple had not lived in the house, and they had also not rented out the house to any person. The fact that they are liable to the capital gains tax is a saddening issue. Therefore, they should seek to get minimization of the capital tax gains. A petition in this case may lead to a subsidized capital gains tax. The property owner may benefit, as a result. This is a sober way of investing, since three years are the unusually long time for the value of the house or property to appreciate. Selling the property at a profit would be extremely lucrative for the property owner. In this case, it is also possible to minimize the tax gains since it is the partner’s property which is on sale (Antonucci 2004). The fact that the property gets registered in one person’s name may be advantageous towards minimization of the capital tax gains. Taking the number of months the house got occupied as a home, adding thirty six months to the result and then dividing it by the total months of ownership. Multiplying the gains by this fraction enables the property owners to know how much the property will be tax free. Therefore, the property owners only need to consult the informed specialists of the laws that govern the capital tax gains. The total gain that has been deducted from this tax exemption is usually the amount of money to be paid. Also, if the amount of money happens to be lower than the lower CGT except of allowance which is usually £10,600, there should not be any bill on the basis of Capital tax gains (Zutshi 2010). Another case that may result in a predicament to the possibility of minimizing the capital gains tax and inheritance tax is the case where a person gets a gift from a parent. Upon the death of a parent, the gift gets accorded by the law as Inheritance. The person should pay both inheritance tax and capital gains tax. However, some circumstances may be used to argue the reduction of the taxation bills that come with this property. For example, if the property is the house, and the person’s parents continue living in the house even after giving it out as a gift, this makes the beneficiary of the gift liable to taxation, in case the person later disposes it by means of selling and making a profit of more than £10,600 (in the 2012-13 tax year) (Williams 2005).
There are also cases where people buy a flat, then rent it out while they continue living in the rented accommodation. There is a predicament whether the sale of such a property makes it liable to the capital tax gains. Sometime the owners prefer to move back to the flat and live there a few years as their homes before making their sale to see if they can avoid the capital gains tax. The truth is that sale of the flat at a price higher than its buying price makes it liable to taxation on the basis of capital gains tax. The owner of the flat may require to sell the house on the revised terms and conditions. Living in the house before selling it minimizes the capital tax gains, but the owner is still liable to tax payment (Great Britain 1966). The best way of avoiding the capital gains tax comes with the exercise of moving into the house and living in it three years before its sale. This makes the house qualify for the residence relief that gets provided for by the HM revenue and Customs Private Relief of residence. According to this institution, the gains of a house that a person has lived become tax free. Therefore, a good way of minimizing or avoiding the capital tax gains for property owners is the exercise of living in the house for a period of at least 3 years before its sale (Sherris 1988).
In a case where parents shifted from the house after giving it out, the beneficiary does not pay Inheritance tax. This is because the act of the parents’ moving out of the house is a symbol that the gift is a genuine one. When seven years have passed from the time parents shifted from the house the house is no longer liable for Inheritance tax. Therefore, it is essential for the house owners who inherit their property to present the facts surrounding the ownership of the property. For married individuals the property they buy should be owned jointly. This usually confers advantages to the married couples because each partner offsets his or her allowances against personal allowances. Hence PPR relief for each partner is a convenient provision that they both enjoy. This serves as a way of minimizing the capital tax gain on the property ownership for the case of people who own houses for renting out (Carmichael 1968).
Minimising Liability of Inheritance Tax from Property Owners
In a case where a brother inherits property from his mother or father upon their death, he should pay inheritance tax. In some instances one of the property owners may want to buy the shares of the inherited property from his or her relatives. In such a case, concern about the possibility of the capital tax gains tax may be a critical issue. To minimize the deductions that come up with capital gains tax, it may be necessary for the person intending to sell the house to use the current market valuation. This allows for the person intending to sell his or her share to enjoy the current market prices of the property, especially if they get subsidized compared to the recent times. Also, a person should deduct expenses that come with legal issues like consulting lawyers for legal information (Thomas 2004). This eradicates loopholes to show the ideal value of the property. In this instance a person intending to sell his or her share of the inherited property may get a minimized capital gains tax billed to him or her since this person has used the actual value of the property. Therefore, it is a powerful thing for people seeking to sell their shares on inheritance to consider conducting a valuation.
A relief from the capital gains tax gets offered by the HM to individuals who dispose areas of their main residence. Therefore, it is necessary to calculate the amount of the chargeable gains if the relief does not exist. This shows that sale of the residential house needs to have a relief which translates to a minimized capital gains tax. The property owners should understand that exercise of minimising this tax is not a particularly hard task. This recognition should help them to improve their dealings with their property. The sale of any property at any given time comes with calculation of its market value. The same applies to the rest cases of permanent residence. Transfer of gifts that were made before December 2003 also gets entitled to a special relief. This gives the property owners a minimal tax rate for the property. In case of property owners who have not lived in their homes for a long period of time, they get expected to multiply the total gain by period they have lived in their homes. This results to a relief in the capital gains tax since it avoids the charging of the property owner on the basis of capital gains tax (West 2003).
In the United Kingdom, the inheritance tax was introduced to replace the capital transfer tax. To a considerable extent it is possible for property owners to minimize liability on the inheritance tax rates. Property owners may give outright gifts. According to the property tax law in the United Kingdom, gifts given during a person’s lifetime get referred to as potentially exempt transfers. They get exempted from tax when the donor does not die within seven years after donation of these gifts. Also, if the donor happens to die within three years of the transfer, there is no tax reduction. When the donor survives three years, there is a considerable reduction in the rate of inheritance tax to the beneficiary. Therefore, it is immensely practical that issuing of lifetime gifts to the next of kin is a way of reducing the inheritance tax. The earlier the gifts are given, the better the situation becomes since the donor's lifetime is an essential aspect when determining the inheritance tax gains (Blakemore 1914).
Also, another possible way to reduce inheritance tax gains is through giving assets to a trust fund before the death. Property owners should consider consulting the help of discretionary flexible trusts so that they give their gifts to them. However, this provision comes with a challenge because some gifts amount to lifetime chargeable transfers. In these circumstances the property owners should be keen to check the cumulative total value of gifts to avoid exceeding the nil-rate band, which is usually £ 325,000. The property owners would also enjoy minimal liabilities if they use special trusts in the United Kingdom. These trusts freely allow access to the inherited capital. When the settler is in good health, a few arrangements cause immediate reduction to the inheritance tax rates. Therefore, liability in the inheritance tax gets massively reduced. Charitable giving is an option that property owners can use to eradicate the liability that is held to them by inheritance tax (Ross 1912). The property given to charitable organizations, such as the Red Cross, is not subject to any taxation. To prevent taxations that amount from inheritance tax, the property owners may consider this provision, especially for the property that may be tremendously helpful to charity organizations. Owners may also consider inheritance as lifetime gifts during social functions, such as wedding gifts. This provision allows for great minimization of liability that the property owners have every year in the United Kingdom, with respect to inheritance tax (Marsh 2011).
Property owners who are immigrants in France may find problems of double taxation of their inheritance tax. However, there was a double taxed treaty between France and the United Kingdom which allows preventing this predicament. Courtesy of this treaty is essential for the property owners to prove their country of permanent residence. When the owner’s property found in France has a value below the inheritance tax threshold, such property is not liable for any tax (Clift 2007). The property owners need to understand these terms and conditions, especially if their settlement is both in France and in the United Kingdom. Therefore, it is necessary for property owners to consult the relevant authorities in order to get guidance concerning possible courses of action to minimize the inheritance tax liabilities. The exemption of married couples gets also provided for by the property tax laws in the United Kingdom. In 2004, the civil partnership act was registered as a part and parcel of the legislation. The tax exception of married couples allows for the married couples to inherit property from their spouses in the event of their spouse’s death. Property owners may use the knowledge about this exemption by law to avoid the liabilities that always come with inherited property in the United Kingdom (Campeau 2010).
The nil-rate band is taxation of the property tax by 0% for the property which is worth less than £285,000. The assets that pass between a husband and a wife, or civil spouses are subject to minimal or no inheritance tax regardless of the value of the property. The knowledge of this provision should be available to the property owners living in the United Kingdom (Fixen 2011). The proof of the marriage in the registered civil partnership may be advantageous for property owners in reducing the inheritance tax liabilities that come with the property inherited from a marriage partner.
Instead of leaving property in the hands of a spouse in the event of another spouse’s death, a brilliant option is to leave the property estate. For example, the wills of both spouses should create provision of the nil-rate band discretionary trust. This trust takes the remaining spouse as a trustee and children and relatives are taken as potential beneficiaries. The idea of including a trust in this case helps considerably in minimizing the inheritance tax rates. Therefore, it is a critical issue to register property in the family will without stating destination of both spouses in the event of death of any of them. The trusts are better options since the property can be later transferred to the children on the tax-free basis (Winslow 1937).
From the foregoing, it is indisputably vivid that liability of the capital gains tax and inheritance tax can be minimized on various grounds. Therefore, it is vital that the property owners should seek professional advice on the possible provisions that would incur the minimal liability of tax that comes with their property. The government of the United Kingdom should also provide more laws that are a little bit lenient on the tax liabilities on personal property. Perhaps the laws could include the minimal rates of the property taxes. This would make a positive drive in the economy since the capital that gets heavily taxed by capital gains tax and inheritance tax would be harnessed to a more productive sector of the economy. Therefore, the property owners in the United Kingdom should be cautious when making taxation dealings during the time they handle their property. They should weigh options rationally to arrive at the cheapest course of action.