Tax Implications of Property Ownership: A Homeowner’s Guide

Tax Implications of Property Ownership

Are you a homeowner or someone soon going to buy your dream home in the United Kingdom? Undoubtedly, owning a home is a milestone that brings immense joy because of various reasons, such as having a sense of stability or belonging, and so on. So, first of all, congratulations on this achievement, but you must know the tax implications. In this blog, let’s dive deep into the various aspects of tax implications that you can encounter as a homeowner.

Stamp Duty Land Tax (SDLT)

If you are purchasing land or property in the United Kingdom, you must pay the Stamp Duty Land Tax. However, you can relax if you have purchased a residential property at £250,000 or less. In such a case, you are not required to pay any SDLT. Currently, the SLDT rate is 5% for a price range of £250,001 to £925,000 if it is the only residential property that you have. Remember, the rates of SDLT may vary depending on various factors.

Council Tax

Being a homeowner, you must know that you have to pay a local tax for local services like rubbish collection, fire and rescue service, street cleaning, and so on. This is called council tax and is levied by local authorities even if you are a homeowner who operates Furnished Holiday Lettings (FHL). In some cases, FHL properties may be liable for business rates instead of Council Tax. However, there is no need to worry because you can hire a skilled accountant for Furnished Holiday Lettings and remain stress-free of your council tax obligations. 

Capital Gains Tax (CGT)

In the UK, Capital Gains Tax is applicable when you sell your home or gift it to someone. However, the good news is that selling your residence also comes with a tax relief called Private Residence Relief (PRR). In this relief, you are not liable to pay any tax if you are selling your home in which you had been living during the entire period of your home ownership while fulfilling some other conditions. 

Currently, if you sell your property that is not your primary residence such as buy-to-let properties, land, business premises, or an inherited property, you are required to pay a CGT of 18% if your taxable income is within the basic Income Tax band or 28% it is above the basic income tax band. This CGT will be on the profit that you will make from the sale of your property. 

Inheritance Tax (IHT)

One of the reasons for which home ownership gives immense pride is also because you can pass on your home to your children or grandchildren. However, in such a case, there will be an Inheritance Tax. The standard rate of inheritance tax is 40% but it is applicable only if the value of your estate is more than the tax-free threshold which is currently £325,000.
Since property ownership comes with various tax implications, you must remain careful and plan ahead to minimize your tax liabilities. If you remain aware of the various taxes, available reliefs, or exemptions, you will be more empowered to optimize your financial position as a homeowner. Remember, tax regulations can change with time and staying updated is essential. So, it is best to seek professional advice to navigate the complexities of property ownership without any stress.