Once you have the offer to buy your land. Your mind may turn to how to minimise the tax liability on your profits. Since this is a valuable asset some knowledge on the subject can be very useful. So, this guide offers tips and strategies for reducing your tax bill. Furthermore, we have included some tax-efficient investment options and ways to offset capital gains.
Tax Savings
First, let’s take a look at minimising your tax liability when you sell your land.
Make use of your annual CGT allowance:
In the UK, individuals have an annual CGT allowance of £12,300 in the 2022/23 tax year. If you sell land and make a profit below this threshold, you won’t have to pay CGT but it is extremely likely you will have to pay this as the offers we make are always far in excess of this threshold, lucky for you there are other ways to offset your tax burden. Check the current rate using this link.
Offset losses:
You may be able to offset any losses you have made on other investments in the same tax year against the profit you make on the sale of your land, which can reduce your tax liability. This is an excellent way of minimising your tax liability.
Claim Entrepreneurs’ Relief:
If you are selling land that you have used for business purposes, you may be able to claim Entrepreneurs’ Relief, which can reduce the rate of CGT to 10%. This is a legitimate way of minimising your tax liability and can offer some big savings on a big sale.
Going forward – Use tax-efficient investment vehicles.
You can invest the proceeds from the sale of your land into tax-efficient investment vehicles, such as ISAs or pensions, to potentially reduce your overall tax bill.
Gifting Profits
Perhaps you want to gift your land sale proceeds to help younger members of your family get that all-important start in life. So, does the Tax Man look on your generosity favourably? Will this be a way of minimising your tax liability?
Let’s take a look.
Giving your land sale proceeds to someone else does not automatically mean that you can avoid paying taxes. The tax implications of gifting your land sale proceeds will depend on several factors. Including the amount of money you give, the tax residency and status of the person receiving the gift, and the purpose of the gift.
In the UK, there are specific tax rules that govern gifts. In addition to rules regarding inheritance tax (IHT), you need to consider your capital gains tax (CGT) allowance. For example, if you gift money to someone who is not your spouse or civil partner, you may be subject to IHT if the total value of your estate exceeds the current threshold of £325,000.
In addition, if you gift money to someone else, you may still be liable to pay CGT if the gift exceeds your annual CGT allowance of £12,300, and you have made a profit on the sale of the land.
So, can you gift say £100,000 of your land profits to your son or daughter?
In the UK, gifts are generally subject to Inheritance Tax (IHT) if they are made within 7 years of your death.
Consequently, if you were to give your off-spring £100,000 from the proceeds of the land sale and then pass away within 7 years, the value of the gift would be added back to your estate for IHT purposes. If your estate (including the gift) is worth more than the IHT threshold, currently £325,000, your estate may have to pay IHT at a rate of 40% on the value above the threshold.
However, there are some exemptions and reliefs that may apply. For example, you may be able to use your annual exemption of £3,000 or your small gifts exemption of £250 to reduce the value of the gift for IHT purposes. In addition, if you live for at least 7 years after making the gift, it will be outside of your estate for IHT purposes.
Therefore, it’s always a good idea to seek professional advice from a qualified tax specialist or financial advisor before making any large gifts or making serious plans with large amounts of money. You need to ensure that you understand the tax implications and any available exemptions or reliefs.
Would your son/daughter have to declare this gift to the tax man and incur income tax penalties?
Profits, from the gifted £100,000 land sale, are subject to income tax or capital gains tax (CGT). As you might expect, depending on how the money is invested. For example, if your son/daughter invests the money in a savings account and earns interest on it, the interest income would be subject to income tax. If your son invests the money in stocks or property and makes a gain when he sells them, the gain may be subject to CGT.
Tax-Efficient Investments That Minimise Tax Liability
If you want to reduce your tax bill on the sale of your land and invest the proceeds into another investment, there are several tax-efficient investment options available in the UK. Some of these options include:
Individual Savings Accounts (ISAs):
ISAs are tax-free investment accounts that allow you to invest in a range of assets. For example, stocks and shares, cash, and bonds, without paying any tax on the returns. You can invest up to £20,000 in an ISA each tax year. This can be a very useful tool for people who want to save money for retirement as drawing down on the ISA in the future will be tax-free. Your ISA will not count as taxable income. Therefore, it can be used to top up your annual pension income without being considered additional earnings.
Self-Invested Personal Pensions (SIPPs):
Indeed, SIPPs are very tax-efficient personal pensions. SIPPs allow you to invest in a range of assets, such as stocks and shares, bonds, and property. Moreover, you will receive tax relief on your contributions. You can contribute up to 100% of your annual income or £40,000, whichever is lower, into a SIPP each tax year. This is an excellent way of minimising your tax liability.
Venture Capital Trusts (VCTs):
VCTs are tax-efficient investment trusts that invest in small and medium-sized companies. You can receive income tax relief of up to 30% on your investment, and any dividends and gains are tax-free. This is an excellent way of minimising your tax liability when spending the profit from your land sale when you cash in on this type of investment opportunity.
Enterprise Investment Schemes (EISs):
EISs are tax-efficient investment schemes that allow you to invest in small and medium-sized companies. You can receive income tax relief of up to 30% on your investment, and any dividends and gains are tax-free.
Property Investment Trusts (REITs):
REITs are tax-efficient investment trusts that invest in a range of commercial properties. They are exempt from corporation tax, and any dividends are paid out tax-free.
The Importance of Expert Advice To Minimise Your Tax Liability
Finally, it’s important to note in order to fully benefit and minimise your tax liability you seek professional help. Tax-efficient investments, offsetting capital gains, and reducing your tax bill can be complex. It’s essential to seek professional advice from a qualified financial advisor before making any investment decisions. They can help you identify the most appropriate investment options for your specific circumstances. A Tax Expert will ensure that you comply with all relevant tax laws and regulations.
Keep in mind that tax laws and regulations change frequently. Which is why it’s important to stay up-to-date with the latest changes. Always seek professional advice before making any decisions that may impact your tax liability.
Looking to turn your unused land into a profitable venture? The Windley Group is here to help. As your trusted partner, we pride ourselves on delivering top-notch service in all aspects of property development. We help everyday people like you transform fields and gardens into desirable building plots. So why wait? Get in touch with us today at 01392 982537 and let’s start building your success story together.
Please note that the information provided in this article is intended for general guidance purposes only and should not be relied upon as a substitute for professional tax advice. The author and publisher of this article do not accept any responsibility for any loss or damage arising from any reliance placed on the information provided in this article. We strongly recommend seeking professional tax advice before making any decisions or taking any actions based on the information provided in this article. By accessing and reading this article, you agree to release and hold harmless the author and publisher from any and all claims, damages, or other liabilities arising from your use or reliance on the information provided in this article.
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