Those buying property face many tax issues, whether it is for their main home or an investment.  Property can be a good investment, but in recent years there have been a number of changes to the way property is taxed in the UK. The rules are now particularly complex and full of pitfalls. Also as property values generally are rising, these assets are becoming much more valuable to individuals both during their lifetime and after they’ve gone.

Property structuring

Structuring how you hold property, whether personally or through a company, in your own name or in joint names, can have a significant impact down the line.  If you purchase property personally, it may be that you could incur tax which could be mitigated if you were to adopt another structure for asset ownership. If you pass away and own the property personally, this will be taken in to account as part of your estate, whereas if it is owned jointly, only half the value may be taken in to consideration.

The Annual Tax on Enveloped Dwellings, where residential properties are held in corporate 'vehicles' is a consideration, and so is Stamp Duty Land Tax. Our experts can advise on taxes to ensure your property is held in the right way.

Gifting to children

As property prices continue to soar across the UK, the dream of owning a home appears to be slipping away from a vast number of under 35’s. Unsurprisingly, the 'Bank of Mum and Dad' seems a very attractive option.

Lending or gifting money to a loved one can be an effective way of tax planning during one’s lifetime, assuming it is made willingly and the perceived investment is worthwhile. What is vital though is to ensure it is properly documented and the tax consequences understood. With the introduction of SDLT on second homes having been brought in, the ownership and agreements you have with your children will need to be thought through so as to not incur unnecessary tax costs. Where a declaration of trust may have been useful before, these may lead to unexpected consequences.

It is important that you assess what funds they can realistically afford to loan or gift to a child or family member, before entering into any of the above arrangements. You should also think about the consequences of death, divorce or bankruptcy of your child, hence the need for proper advice and clear documentation.

Property and marriage

With many individuals now owning more than one home, or a buy to let property, the assets you hold will be more valuable to you. As you enter in to a new relationship or marriage, thought should be given to how you protect these.

Many now worry for what will happen to their property should they or their children marry. We advise families on how to protect property through marriage, and unfortunately divorce, to ensure the value you have built by generations, is retained.

Although regarded as a tool for celebrities or the ultra-wealthy, marital agreements are becoming much more commonly used with couples who wish to enjoy their marriage, safe in the knowledge they have done as much as they can to protect their property or portfolio of properties. Another option is a living together agreement which sets out the day to day financial arrangements involved in cohabitation and can assist in protecting both parties from some of the consequences of later separation.  Living with a partner can have serious financial consequences if the relationship breaks down, particularly if the financial contributions to a property have not been properly thought through. 

Inheritance tax

Inheritance tax on properties has become more favourable to families leaving a house to their dependents, further to the introduction of the Residence Nil Rate Band (RNRB), which will be £175,000 by 2020/21. This is in addition to the existing nil rate band (NRB), currently £325,000. There are clauses that you must meet, and special provisions to cover the position where you downsize or no longer own a home at your death. Read more about the RNRB here.

The SDLT surcharge on second homes can also now apply to inherited properties, so if your children do inherit and wish to go on to buy more property, they could have unexpected tax to pay. Read more here.

Your Will is another vital tool to have in place to ensure the property you own is properly thought through and accounted for.

For further information on how Blake Morgan can support you in protecting your home and property, please contact us. 

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Blake Morgan's Residential Property Spotlight


Shining a light on developments in the residential property market.

Private Client Issues - April 2018


Welcome to this month's edition of Private Client Issues, Blake Morgan's monthly round-up of the topics you may find of interest.

Buyer-funded developments: is the potential return worth the risk?

Post the financial crisis of 2008, the buyer-funded development model has become increasingly common. Recent media coverage tells a tale of failed projects, financial loss and allegations of fraud. We explore how these schemes operate and the risks.

Freehold vs leasehold: what's the difference?

Freehold and leasehold are the two main types of property ownership in the UK. Here we explain how these types of ownership differ and the considerations to note when buying a leasehold property.

The benefits and pitfalls of new build properties

UK Finance has announced that first time buyers accounted for over 50% of all new residential mortgages in the first quarter of 2018.