1. Take advantage of the latest capital gains tax changes in April’s Budget.

In his latest Budget Alistair Darling abolished indexation and taper relief and introduced a single tax rate of 18% on the gain made on the sale of buy-to-let property. Before this change, the rate depended on what tax band the gains fell into and how long you had held the assets.

Previously, you paid capital gains tax on the difference between the price you paid for the property and the price you sold it for.

But with the simplification of the current system, the length of time you have owned the property is now irrelevant. A property investor who has owned a second home for one year will pay exactly the same amount of tax as someone who has owned their property for ten years.

This is great news for buy-to let investors.

2. Make use of your capital gains tax allowance - and your spouse's if you're married or in a civil partnership.

Everybody has a capital gains tax allowance. For the 2009/10 tax year, the first £10,100 of the gain is exempt from the tax charge and if you're married, or in a civil partnership, and the property is held in joint names, you, as a couple, can make capital gains of £20,200 before you face a tax bill.

For example, if you purchased a house on your own for £110,000 and were selling the property for £200,000 now, you would have achieved a 90,000 gain. If you use your allowance, the gain would be reduced by £10,100 to £79,900. The capital gains tax flat rate tax of 18% would mean that your final tax bill would be £14,382. If the property is jointly owned, the tax bill would be reduced to £12,564 - a saving of £1,818.

Being married, or in a civil partnership, gives you added flexibility regarding tax issues. You're able to transfer properties between yourselves, in and out of joint ownership, free of tax. However, inheritance tax and income tax issues should also be considered before making any transfer.

Find out how you can save inheritance tax here.

3. Offset legal costs, improvements and stamp duty against any gains.

To reduce your capital gain, you have to maximise the allowable costs. These are all costs involved with the purchase, ownership period and sale of the property that fall within the definitions stated by HM Revenue & Customs. There are various allowable costs, but they include solicitor's costs, accountancy fees (where relating to a valuation) and stamp duty.

If you have made any major changes to the property (i.e. an extension or have refitted the bathroom) while you have owned it, and relief for this expenditure has not been claimed against the rental income, then the costs of these alterations can be taken off the gain. Minor refurbishments, such as repainting walls, don't count.

For more information on the allowable costs available, visit HM Revenue & Customs' website.

4. Live in the property for a few months before you sell it.

If you own a buy-to-let property, you could save a substantial amount of money by using it as your main home - known in the tax world as your "principal private residence (PPR)".

Buy-to-let investors usually claim partial residence relief. This can be claimed if you used the property as your main residence, but then you moved out of the property and still retained ownership (i.e. you rented the property out). In this scenario, you wouldn't be liable for capital gains tax for the duration that the property was your main residence and for the last three years of ownership. The latter is covered by, what is called, the '36-month rule'.

Numerous property investors are using this rule to save tax. When they purchase a new property, they rent out their existing private residence and then move into the new one; thereby taking advantage of the 36-month rule.

But, before you move into your second property, remember that you must live in the property for at least a few months. You must have occupied the property properly as a family home and will need proof of residence, such as bank statements, postal details and electoral details which are all registered to the new address.

Also, note that you have a time limit in which you can nominate which property is to be your main residence. Within two years of buying a second property, you can choose which property is to be your main residence and you don't have to be living in it at the time. But after two years, you do lose the right to nominate which property is your principle residence and you would then have to prove that you were living in the second property to avoid capital gains tax. But it's possible that you could revive it if you bought a third property, or if your second home became your principle residence for a time.

Remember that if you do move into your second property, your other home could then be liable for capital gains tax for that period, but if you do return to your main residence, you will be entitled to a further three-year (maximum) entitlement to PPR relief, in addition to the 36-month rule.

This is a complex issue, so professional advice should be sought.

5. Get letting relief on your main residence.

If you move into your second property and let out your first home, you can be entitled to "private letting relief". You can exempt up to £40,000 of the gain accrued during the period that the property was let out as private residential accommodation.

Anyone who has a share in the property can claim it, so if the property is in joint names, you can claim £80,000 between you. With the main residence exemption and private letting relief, your overall capital gains tax bill can be reduced dramatically

Again, it's always best to take professional advice.


More expert tips on how to save tax can be found in Lawpack’s book, 101 Ways to Pay Less Tax. Written by award-winning accountants, the book tells you how you can get round the taxman, whether you're married, single, self-employed, an employee or an employer.

Lawpack's book, Buy-to-Let Bible, also tells you how to create a successful property portfolio, even in tough times, and how to avoid capital gains tax and income tax. Written by buy-to-let millionaire, Ajay Ahuja, it gives you all the tricks of the trade on how to make money from property in the long term.

More information
Seven steps to saving inheritance tax
Widowed parents call for inheritance tax change
Get more tax tips in Lawpack's guide 'Tax Answers at a Glance'
Why inflation is great news for buy-to-let landlords
Buy-to-let landlords: how to make a profit from the credit crunch
Why you can still make money from buy-to-let in a recession
Make tenancy agreements easily, and save money, with Lawpack's 'Residential Lettings Kit'
Landlords: Download Tenancy Agreements now here