MPs aren’t the only ones who can play the system
With the MPs’ expenses still very much in the news you may well have heard the term ‘flipping’, in relation to second homes. It is a technique used to avoid paying Capital Gains Tax (CGT) by using ‘time to sell’ rules and the nomination of a property as a main residence. Well you may be pleased to learn that this practice is not just reserved for those in positions of power – the great unwashed can do it too.
Now here’s the science behind it:
Note that the CGT exemption only applies to the gain made on the property since it was registered with the taxman as your PPR. Therefore, if you have lived in a property for many years, nominating the property as your PPR may not wipe out the entire CGT liability. If you want to take advantage of this particular loop hole, you may have to hurry because in the wake of the MPs’ expenses scandal, accountants say that the rules may well change.
Unfortunately, the other major property tax, stamp duty, is rather more difficult to avoid. This is payable when you purchase a property for over £175,000 – until 31st December 2009 at least, when the stamp duty holiday finishes and then it will once more revert to being payable on property transactions of over £125,000. The tax is payable at 1% up to £250,000, at 3% up to £500,000 and at 4% on properties worth more than half a million pounds. Apart from using the stamp duty holiday to avoid paying it, the only other way you can get a discount is to buy in a ‘disadvantaged area’ where the threshold is normally £150,000 rather than £125,000.
Rent a Room Scheme
In addition to be a valuable source of income, renting out a room in your home can also be very tax efficient. In fact, under the Rent a Room scheme, you can receive up to £4,250 per year, tax free, from letting a room in your main residence. To qualify for the scheme you must let furnished accommodation within your PPR and your lodger can rent anything from a single room to an entire floor. However, if you have converted part of your property into a separate flat, you will no longer be eligible. It is even possible to qualify for the scheme if you are not a homeowner, by renting out a room in the property that you rent. Of course it goes without saying that you need your landlord’s consent to sub-let.