Capital gains tax is payable whenever a gain is made on a property. If you don’t plan in advance for it, you could end up with a large tax bill from the Inland Revenue. What you need to realize, is that you could be charged 40% on your gains.
Basically, the Inland Revenue will decide from your self assessment return if you are a property investor or property dealer.
If you are a property dealer (in other words you purchase property for the sole intention of adding value to it then selling it on for a profit) then you will NOT be liable for capital gains tax.
However, if you intend to hold the property long-term as a property investor, then you may be liable for capital gains tax when you come to sell the property.
The Inland Revenue allows each individual an annual tax exemption for capital gains tax, currently for 2007/2008 this is £9,200.
There are a number of ways to reduce your capital gains tax liability. Briefly, Inland Revenue offers a number of certain relief’s to the tax payer.
Your accountant will be able to advise you on how to use these relief's to your advantage. A good accountant will even show you how to avoid paying capital gains tax altogether.
Whatever you do, make sure you inform your accountant before selling your property, as timing of the disposal can help reduce your CGT liability.