Cut your tax bill with property

Use your allowances

The headline from last month's Pre Budget Report for many was the transfer of IHT allowances between married or civilly contracted couples, good news for the many people who own property.

But there other ways to cut your tax bill if you are a property owner. One way is to use your allowances. If you are married or civilly contracted, transfer half the property into your spouse's name before you sell your property so you can make use of two capital gains tax (CGT) allowances. A couple could benefit from a gain of £18,400 before paying CGT.

If one spouse is a basic rate taxpayer and you are letting the property, it makes sense to have it in his or her name until you want to sell, so that you pay less income tax.

It is possible in the right circumstances to nominate a second home as your main property so that it is liable for less CGT when you sell.

You must nominate your main home as your principal private residence (PPR) within two years of buying a second one. This gives you the right to alter your PPR to the second property at a later date.

If you do not specifically nominate a property, HM Revenue & Customs (HMRC) would simply assume your first home was the main one throughout. Once you switch the nomination to the second property, you will not be liable for CGT for the last three years of ownership.

For a second property to qualify as your PPR, HMRC's rules state that you have to live there and they quote an example of a nomination existing for a minimum of a week – although you could still get three years' exemption.

If you rent out a property that used to be your main home, it will be exempt from CGT for the years you lived there, plus the last three years of ownership.

As well as the PPR relief, you could also qualify for letting relief. This is a very valuable tax break and is worth a maximum of £40,000 per owner.

Parents who buy a property for their offspring to live in at university can reduce the CGT liability by purchasing it through a trust. The parents can be the trustees and write a clause in the trust deed that entitles their child to live in the house rent-free. If you buy through a trust you qualify for PPR relief without affecting the relief on your main home.

If the property is rented out to other students, you will not get 100 per cent relief. Communal areas and your child's bedroom are exempt from CGT. You are also entitled to letting relief, which effectively means one extra bedroom can be included in the exemption.