Understanding how property income tax works - what you need to know
Understanding how property income tax works - what you need to know
31st August 2005
Always remember - that regardless of whether you are a property investor or a property dealer, you will be liable to pay Income Tax if your business makes a profit.
If your business does not make a profit then you are not liable to pay Income Tax. We will now quickly look at the Income Tax guidelines so you can understand what your potential liabilities will be.
The table below shows how Income Tax is calculated and the rates for the year 2005/2006:
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INCOME TAX 2007/2008
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Rate/Allowance Value
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Band
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Value
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Description
|
|
Single Person Allowance
|
0%
|
£0 to £5,225
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The first £5,225 of an individual's income is Tax Free
|
|
Starting Rate
|
10%
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10% £5,225 to £7,455
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The next £2,230 is taxed at 10% i.e. any income between £5,225 and £7,455 will be taxed at 10%.
|
|
Basic Rate
|
22%
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£7,455 to £34,600
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The next £32,369 is taxed at 22% i.e. any income between £7,455 and £34,600 will be taxed at 22%.
|
|
Higher Rate
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40%
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> £34,600
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Any income received above £34,600 will be taxed at 40%.
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Key Tip: The two golden rules for Income Tax are:
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Make sure you use your tax free personal allowance
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Minimise the amount of tax paid at the higher rate of 40%
Understanding CGT
CGT is liable whenever a gain of a capital nature is made when you sell your property.
You are only liable to pay it if you are a property investor and it is only paid when the property is sold. If you are a property dealer then you will not be liable to pay CGT, nor will you be able to make use of the CGT allowance.
Using your CGT allowance
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