Fees & Taxes

Stamp Duty

This a tax paid to the government based on a percentage of the house purchase price. No duty is payable on a property worth less than £60,000. 1% is due on houses bought between £60,000 and £250,000. It then rises steeply to 3% on houses between £250,000 and £500,000, and then up to 4% on properties above this value.

To put this into perspective, when purchasing a £210,000 property, you will pay £2,100 stamp duty.

A £280,000 property will cost you £8,400 in duty and a £600,000 property will cost you a whopping £24,000 in duty.

Mortgage Fees

(see mortgages / redemption penalties)

Capital Gains Tax

When selling a property which isn't you main stay of residence or isn't your only property, CGT is charged on any net gains.

Deductions

Certain costs are allowable in computing chargeable gains:

• The acquisition cost or market value on 31 March 1982 (if the asset was acquired before that date).
• Costs of acquiring and disposing of the asset.
• Expenditure on enhancing the asset's value.
• Indexation allowance

Rate of tax

The first £7,900 of an individual's net gains realised during the tax year are free of CGT. The excess is taxed as if it were the top slice of income, at the rates that apply to savings income, namely 10% on the first £1,960, 20% on the next £28,540 and 40% on the balance.

Husbands and wives are subject to CGT separately, each with their own annual exemption and tax rates. Transfers between spouses living together are not liable to CGT.

In short this could mean if you had two properties and sold one for £250,000 that you bought 5 years before for £150,000, you may well have to pay 40% CGT on the £100,000 profit you have made.

See above for a few of the ways you can reduce the tax bill.

Rental income from your property is also classified as capital gains tax see rental for more info .

Inheritance Tax

When someone dies or when assets are transferred to a discretionary trust or to a company. Tax will only be payable if the estate on death or the value of the assets transferred is more than the tax threshold.
For 2004/05, the tax threshold is £263,000.
(For 2003/04 it was £255,000).

If there is any IHT to pay when someone dies, the tax must be paid before the probate registry will issue a grant of representation.

IHT may arise when a person dies or on certain lifetime gifts which are not exempt or potentially exempt.

• Individuals domiciled in the UK may be subject to Inheritance Tax on their worldwide assets.
• Non-UK domiciled individuals are generally only subject to Inheritance Tax on their UK assets.
• Individuals who have been resident in the UK in 17 out of the previous 20 years are treated as UK domiciled for Inheritance Tax purposes.

Husbands and wives are taxed separately; however, there is no Inheritance Tax on transfers between spouses, provided the recipient is domiciled in the UK.

Rate of tax

IHT is charged at 40% on death, and at 20% on certain lifetime transfers. The first £255,000 is charged at a nil rate.
Where a donor of a lifetime gift dies within seven years of making the gift, IHT may be due on the gift. The full rate of tax is reduced depending on the interval between the gift and the date of death. If the gift, plus chargeable transfers in the previous seven years, is not more than £255,000, it is within the nil rate band and so there is no reduction.

Valuation of assets

The value of assets for tax is their open market value. However, the charge is based on the extent to which the value of the donor's estate is reduced. Shareholdings of less than 50% in a company are usually valued at less than a majority holding, but the valuation may be affected by related property.

For example, where a husband and wife both hold 45% of the shares in a company, the value of each holding will be based on a 90% valuation.

Gifts with reservation (GWR)

An asset that a person has given away may still be treated as forming part of the donor's estate on death if he or she has retained a benefit in the asset. An example is where a donor makes a gift of property but then continues to live in it rent-free.

Main exemptions

• Transfers between UK domiciled spouses.
• Annual exemption for lifetime gifts of up to £3,000 per donor.
• Small gifts of up to £250 per donee.
• Normal expenditure that is regular, made out of income and does not reduce the donor's normal standard of living.
• Gifts in consideration of marriage:
  • By a parent, up to £5,000.
  • By a grandparent or a party to the marriage, up to £2,500.
  • By another person, up to £1,000.
• Gifts to charity, major political parties or for national purposes (e.g. to various public institutions).
  

Foreign Property Tax

The basis upon which a person is taxed in any country depends upon whether they are classified as "Tax resident" in that country.

Generally speaking, a person is treated as tax resident in a country if they spend more than 183 days there in any calendar year or if their main home is in that country. Other rules can also classify you as a Tax resident. It is even possible to be a tax resident in more than one country in which case special rules apply.

Taxes for non residents

A person who is a non tax resident in an overseas country but who remains tax resident in the UK will generally have his Tax obligations in the UK.
You will however have some tax obligations in the country where your overseas property is based:

• The equivalent of council tax
  
• Tax on income from letting's
  
• Tax on profit made when selling the property
  
• Wealth tax (in Spain and France ) based on the value of your property
  
• Inheritance tax (when you inherit an overseas based property) , based on the value of your property

Taxes for residents

Once you decide to become, or you are classified as an overseas resident you will have to pay the local tax authorities tax on your worldwide income and assets. A lot of overseas tax rates will be higher then UK tax rates. Therefore it is wise to have some expert financial advice before you buy overseas and are thinking of becoming a resident there.

Make sure you talk to a British financial adviser to explain the implications of buying a property abroad and/or you moving abroad. Remember that you will also be liable for paying tax in the country where you are buying so also get advice from a local tax advisor.

Overseas bank account

When you have decided to buy abroad it may be advisable but not necessary to open a local bank account. Developers will usually require stage payments to be made through a local bank account and, on completion the utility companies can require payment of their bills by direct debit.

You should be aware that some overseas banks charge a commission to receive funds from overseas.

Read about making a will to avoid paying unnecessary tax.