Tax dodge of the week: slash your CGT bill to zero

published 24 October 2007

Britain's estimated 600,000 buy-to-let investors and second-home owners were "handed a potential £4bn tax boost" in last week's Pre-Budget Report, says Clare Francis in The Sunday Times. From 6 April 2008, taper relief will be abolished and capital gains tax (CGT) charged at a flat rate of 18%. This will save sellers an average of more than £6,000, and with a bit of extra planning, you could reduce your CGT bill to zero.

At present, taper relief kicks in after three years of ownership, reducing the taxable gain by 5% a year, down to 60% after ten years. This reduces the effective rate of tax to 24% for higher-rate taxpayers (which most property investors are), meaning anyone selling after next April will be paying between 6% and 22% less in CGT, depending on how long they have owned the property.

To reduce this further, transfer half the home into your spouse's name to make use of two CGT allowances (worth £18,400) and nominate your second home as your principal private residence. You only have to live in the second property for a week for it to qualify, and once you switch the nomination you will not be liable for CGT for the last three years of ownership.

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