Which taxes apply when you buy or sell a property?

You could end up with an expensive tax bill if your accountant is only thinking about one type of tax when you buy or sell anything.

Thinking of selling a property and buying a new one to rent out?

Which taxes should you think about on a property transaction?

You need to think about:

1. Stamp Duty Land Tax (SDLT)
2. Capital Gains Tax (CGT)
3. Income Tax (IT)
4. National Insurance (NIC)
5. VAT
6. Inheritance Tax (IHT)

Not all these taxes apply to every transaction, but if your accountant only considers one of the above, you could end up underpaying tax.

Each of the six has its own trigger.

When do Stamp Duty Land Tax and Capital Gains Tax arise?

SDLT is the tax on the purchase. HMRC's guidance says you must pay it if you buy a property or land over a certain price in England and Northern Ireland, and that you will usually pay 5% on top of the normal rates if buying a new residential property means you will own more than one.

CGT is the tax on the sale. HMRC's guidance says you may have to pay it if you make a gain when you sell property that is not your home, such as a buy-to-let property, business premises, land or inherited property, and that you must report and pay the tax on most sales of UK property within 60 days.

Your own home is treated differently. HMRC's guidance says you do not pay CGT when you sell your home if a list of conditions is all met, including that you have lived in it as your main home for all the time you have owned it and have not let part of it out. If any of those conditions is not met, you may have some tax to pay. That is the subject of Private Residence Relief when you rent out your home before selling.

When do Income Tax and National Insurance arise?

Income Tax comes in once the new property is let. HMRC's guidance says you must pay tax on the profit you make from renting out the property, after deductions for allowable expenses, and that the first £1,000 of your income from property rental is tax-free.

National Insurance depends on how you operate as a landlord. HMRC's guidance says you may be eligible to pay voluntary Class 2 contributions if you count as gainfully employed for National Insurance purposes, for example if being a landlord is your main job, you rent out more than one property, or you are buying new properties to rent out.

When do VAT and Inheritance Tax arise?

VAT depends on what is being sold. HMRC's VAT Notice 742 says the grant of an interest in land is normally exempt from VAT, with exceptions. The freehold sale of a new or partly completed commercial building is standard-rated, a building counts as new for 3 years from completion, and supplies of land that the owner has opted to tax will normally be standard-rated.

Inheritance Tax is charged on death. HMRC's guidance describes it as a tax on the estate (the property, money and possessions) of someone who has died. A home left to someone other than a husband, wife or civil partner counts towards the value of the estate, and a house given away less than 7 years before death may be taxed as a gift.

What happens if one of them is missed?

If your accountant only thinks about CGT, there's a big possibility you'll end up underpaying tax and you'll be hit with fines, interest and possibly penalties.

HMRC's guidance on compliance checks says that if you owe more tax you will be asked to pay it within 30 days, and you will normally have to pay interest from the date the tax was due. You may also have to pay a penalty. In deciding that, HMRC looks at why you underpaid, whether you told them as soon as you could, and how helpful you have been during the check.

Some of these taxes have short deadlines of their own. An SDLT return and payment are due within 14 days of completion, and HMRC's guidance says you may be charged penalties and interest if you miss it.

On picking the person who looks at a transaction like this, see how to choose a tax adviser.

Rates, reliefs and deadlines for all six taxes change, and which of them arise depends on the property and on your own circumstances, so this is general information rather than advice on your transaction. If you are planning a sale or a purchase, talk to us or see how we work.