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Knowing your property tax strategy – part one
Understanding your tax liabilities
Over the past few years, property investment has become a profitable way to make money, but unfortunately there are very few people who consider the tax implications of their investment strategy before they decide to invest.
Instead, they take a view that they will address the tax issues when they decide to dispose of the property. This can be a very costly mistake as some simple planning can help to avoid large tax bills in the future!
The two types of taxes that you are likely to be required to pay are, Income Tax and Capital Gains Tax.
Using HMRC definitions:
“Income Tax is a tax on income. Not all income is taxable and you’re only taxed on ‘taxable income’ above a certain level.”
“Capital Gains Tax is a tax on the profit or gain you make when you sell or ‘dispose of’ an asset.”
The type of investment strategy that you use determines the tax that you may be required to pay. The table below gives an indication of this: