Oh Angela, if only you'd asked!

The controversy involving former Deputy Prime Minister Angela Rayner’s underpayment of stamp duty due to trust arrangements, recently highlighted just how difficult navigating the UK property tax system can be.

From Stamp Duty Land Tax (SDLT) to Capital Gains Tax (CGT), Inheritance Tax (IHT), to placing properties in trust, the rules are complex, particularly when it comes to first and second homes.

And as Angela Rayner found out to her cost, it is vital to get expert advice to understand how each of these taxes apply in your case.

1. Stamp Duty Land Tax (SDLT)

SDLT is a tax payable on property purchases in England and Northern Ireland. The amount due depends on the property’s value and whether it is your main residence.

First-Time Buyers:

• Up to £425,000: No SDLT is payable.
• Between £425,001 and £625,000: 5% SDLT.
• Above £625,000: 5% SDLT on the portion above £625,000.

Second Homes:

An additional 5% SDLT surcharge applies to second homes, regardless of value. This is intended to discourage property speculation and support first-time buyers.

Recent Controversy:

Angela Rayner’s underpayment of SDLT on her £800,000 Hove flat, due to a trust arrangement, demonstrates the complexity of SDLT rules involving trusts.

2. Capital Gains Tax (CGT)

CGT is payable on the profit made when you sell a property that is not your main residence.

• Rates: 18% for basic rate taxpayers; 28% for higher and additional rate taxpayers.
• Exemptions: Private Residence Relief may exempt gains on your main home. If the property was previously rented out, Letting Relief might also apply.

Inherited Property:

CGT is not due immediately on inherited property. However, if you sell it later, CGT applies to any gain since the date of inheritance.

3. Inheritance Tax (IHT)

IHT is charged on estates above the nil-rate band (£325,000) at 40%. An additional Residence Nil-Rate Band of £175,000 may also apply if the estate includes a home left to direct descendants.

Reducing IHT:

• Gifting: Gifts made more than seven years before death are usually exempt.
• Trusts: Placing property in a trust can potentially reduce IHT liability, depending on the type of trust and its terms.

4. Property in Trust

Transferring property into a trust can have significant tax implications.

• Stamp Duty: Transfers into a trust can trigger SDLT, particularly if the beneficiary is under 18, as the property may still be treated as a second home.
• Capital Gains Tax: Transfers may trigger CGT, depending on the trust type and circumstances.
• Inheritance Tax: Assets in a trust may be outside your estate for IHT purposes, potentially reducing liability.

Conclusion

Understanding the nuances of UK property taxes is essential for making informed decisions, whether you are buying your first home, acquiring a second property, or planning your estate. Recent events underline the importance of seeking professional advice to navigate the complexities of property transactions and tax obligations.

For tailored guidance, consult a qualified tax adviser compliance and optimise your tax position. Contact our team of tax experts for an initial free consultation on tax@richardsonswift.co.uk, or call on 01225 325580.