A Guide to Property & Construction Tax Planning

Property and construction tax planning is a vital part of investing, owning or building a property. It not only applies to construction companies, but also individuals who are planning to buy, invest or construct a property. The tax issues can be complex and if not done properly could lead to expensive tax penalties and additional costs.

In most property tax issues, you should seek professional advice and plan ahead for any tax liabilities that may be incurred. Professional tax planning is important to navigate the complexities of property and construction tax. Professional advice is invaluable, as tax rules and regulations change and it is important to understand the changes and how they affect you.
 

Stamp Duty Land Tax (SDLT)

For those about to buy a property, you need to know about Stamp Duty Land Tax (SDLT). This tax, also known as stamp duty, is charged on any property bought in the UK – such as a flat, house, land or building. This tax is levied on properties that cost more than £125,000. Also, if you are a first-time property buyer, the threshold is £250,000, however, this threshold is only valid until 25 March 2012. The stamp duty above the £125,000 threshold starts from 1% and goes up in stages to a maximum of 5%. For exact thresholds, look up the HM Revenues and Customs (HMRC) web-site: www.hmrc.gov.uk

Capital Gains Tax (CGT)

Taxes can also be incurred when selling a property, although there are certain exemptions. Taxes are not incurred on the sale if the property is your main home. If the property your are selling is not your main home, then you will incur Capital Gains Tax (CGT), on the difference between the purchase price and selling price. The calculation is slightly more complex than that and the tax levels change by accounting year, so it is best to consult a professional tax advisor.

Taxes are also incurred, if you rent out your property or even part of your property. It is important to figure out what category your rental property comes into, to be able to assess your tax liability correctly.

Construction Industry Scheme (CIS)

Construction tax has its own set of considerations. The HMRC has a Construction Industry Scheme (CIS). This scheme is related to contractors and sub-contractors and how to manage payments to them. To be eligible for the scheme, you must register with HMRC first. The CIS applies to a whole range of people working in the construction industry, as well as businesses that spend a certain amount each year on construction.   

There is also building and construction work that is taxable under the construction VAT scheme. However, some types of construction and building can be charged under the lower VAT rate of 5% - for example, renovating or altering an empty house or flat.

Please contact our property & construction experts if you need further information regarding any of the issues discussed, or would like to speak to someone about your property & construction tax issues.