Work your way up the property ladder, buying properties to which you can add value in either up or down markets. Your principal residence is capital gains tax free on sale. A second property attracts capital gains tax of 18% when sold, but see below for how to reduce this. To avoid CGT completely you could go for country specific or sector specific (land / commercial / residential) property funds or Real Estate Investment Trusts within an ISA wrapper. These alterntaive property investment vehicles have the added benefit of being able to be sold instantly and at negligible fees.

UK house prices are currently 23% higher than the long-term trend, and housing reports from the last 9 months make it clear the market has topped and is now in decline. Based on the long-term price trend, a house currently on the market for £200,000 has a ‘real’ value of £166,000, with the buyer paying a premium of £34,000. Based on what's happened following previous housing booms (from Nationwide stats) house prices are expected to return to fair value in a multi-year bear market. But because prices during a bear market always undershoot the trend before pulling back upwards towards it, at the lowest point of the undershoot (which could be around 2014), prices could be 25% below the long-term trend. So, a house at £200,000 today may drop to just £148,000 in 2014, adjusted for inflation.

These timings could be out to some degree as history never repeats itself exactly. However, based on this, a strategy could be to sell property now to maximise gains, and wait a further 6 years before buying back into the market. This would mean either renting whilst speculating the funds in rising markets (such as commodities) or buying (and living) somewhere abroad where the property market is just beginning to take off. If you chose the option to rent in this country instead and simply put your cash in a savings account, then calculating the increased costs of renting netted by the interest income, house prices would need to drop by at least 4% before you were better off. 

If you are intending on making a transaction in the property market this year despite the more challenging conditions, then these two things may assist:

Firstly, Halifax have indentified several areas that it believes will see firm price rises this year, even if the national average drops. Their predicted hotspots are: Lochgelly, Paisley, Greenock, Aberdeen, Hackney, Chatham, Dartford, Liverpool, Pontypool and Newport.

Secondly, Globrix is a new UK national property search website that is currently in Beta. Unlike other property search websites it is not limited to those estate agents who have signed up to the service. Instead it uses spidering, like Google does, to crawl the web for all the properties it can find. As a result, it already has 500,000 properties on its pages, which is second only to Rightmove which has 981,000 (Primelocation, Findaproperty and Propertyfinder all have around 300,000). The other advantage of Globrix is its detailed filter. Not only can you narrow down your results by property type and number of bedrooms, but also by features such as garage, balcony and acres of land, and keywords such as Georgian, ensuite, conservatory, air conditioning, stable and more.

Find out what's going on in the housing market in your town or area

Go to the BBC's Land Registry database feature here. Type in your postcode. See house price change in your town or area for the last 3 months and 12 months, and broken by type of property too; also compares with neighbouring areas. Then click on Overview and see the top 10 towns/areas for increases in the last 3 months and 12 months to compare where and by how much.

Then go to UpMyStreet, type in your postcode in Location and enter. Then click on Property Trends under Property Prices in the pink menu box on the left hand side of the screen. Now you can see the change in house prices over the last 5 years in your town or areas as a graph, and again you can click to break this down by property type. Then scroll down the screen to see the historic property prices for your town or area dating back to 1995 (either all properties or by property type). If you bought your home after 1995 then you can use the data to work out what your home is worth now. Just find the price listed against the quarter of the year in which you bought your home, divide the price you paid for your house by that figure, and multiply it by the figure for the latest quarter.

Adding value to a standard house

Unless you are settling in your current home for life, then make sure any improvements that you make raise the re-sale value of your home by more than the cost of the improvement. Make sure you don't over-improve it beyond the resale potential for the area, or beyond the ceiling price for similar houses in your street or surroundings. 

The real key to adding value comes in expanding actual space rather than mere cosmetic makeovers. As such, loft conversions, digging out cellars, building extensions and developing garden plots are the real value-adding winners. Conservatories can be a white elephant, being either too hot or too cold for most of the year. An extension is a safer bet.

A property without central heating is almost impossible to sell. If the old property that you bought doesn't have it, then get it installed. Many buyers don't want the hassle of fitting it themselves and would expect to pay £8,000 to £10,000 less than for similar properties with central heating. Also, buyers demand more than one toilet in today's homes, unless at least it is separate from the bathroom. If you can fit in a second loo/cloakroom then that should be an early consideration.

Knock the living and dining room into one. Today's buyers look for light, airy spaces. A small number of people may be put off by having the one room, but you will be appealing to the majority. Consider a new bathroom or kitchen. Both are rooms that can sell a property. If the kitchen units and bathroom suite are essentially OK, then new worktops, doors, handles and tiles for the kitchen or new tiles and flooring for the bathroom can produce a similar result economically.

Smarten up the front - both the front garden and the property's facade. Remember that the property's exterior is the first and last thing people see. Create off-road parking if there is a parking problem on your street. In this situation it's worth foregoing the front garden and putting down a driveway.

Improve the back garden. They key to this is planning. Gardens need time to develop, so get to work on this first - unless you want to pay inflated prices for mature plants and trees. If you know the season in which you will be sellling then plant your garden with a bias to this, e.g. blankets of spring flowers, or evergreens for the winter.

According to a survey by GE Money, here are the home improvements that return the biggest increase in value to a property. Check which of these are feasible for your home, get quotes in for those applicable, and establish the largest gap in value-add over costs quoted. Note that the number 1, a loft conversion, also typically does not require planning permission - see section below.

And according to a survey by Alliance & Leicester, here are the top 10 home features that detract from the value of a property. If you are looking to sell and have any of these in your house, consider their removal before marketing your property.

Play the Planning System

 

The table below shows ways to add value to your principal residence to help your chances of a (capital gains free) profit at each trade, WITHOUT requiring planning permission (unless your house is listed). Calculate the gain based on your house price, get the quotes in, and see where the best return is.

 

Development	Planning Permission exemption criteria	Value added to house
Split rooms or merge rooms	Planning permission is not required as long as the changes don't create two separate houses or a business and a house	Up to 10%
Loft conversion	As long as the actual volume of the house isn't increased and its cubic content is not exceeded by more than 40m3.	6-15% per bedroom added
Single-storey extension or conservatory	Must be within 2 metres of the boundary of the property and no more than 4 metres high. It must not exceed more than 50m3 for a terraced house and 70m3 in any other type of house. Also, it cannot be built nearer to the road than the existing house.	Up to 10%
Outdoor swimming pool	Must not cover more than half the garden	Up to 5%
Garden office	The new outbuilding must not cover more than 50% of the garden	Up to 2.5%
A garage	No planning permission required if it is built 5 metres or more away from the existing house. Plus it must not be nearer to the road than the original house, nor more than 4m high if pitched roof or 3 metres high if flat roof.	10-20%

 

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Slash Estate Agent fees

 

When it comes to selling your house, estage agents will typically charge you between 1.5% and 3% of the sale price, which can equate to thousands of pounds or even tens of thousands. Here are your options for how to slash this expense, and thereby shore up a greater profit. NB: In all instances you will need a solicitor to perform the conveyancing.

 

Many estate agents are open to negociation on their fee, but few people are aware of this. Haggle for a lower fee - particuarly in a 'hot' market. You could push for a straight forward lower rate, or you could suggest a sliding scale (the more money they get for your property, the greater their percentage) or lower fee if they don't sell within an agreed time (if you need a quick sale).

 

A DIY property portal is Sell My Own Home, which will give you a basic listing on its site for £9.99. The site claims to get 250,000 hits a month. For £79.99 your listing will also appear on Fish4Homes, Home.co.uk and Properties Direct (which together claim 2 million hits) and you will get a personalised for sale board.

 

If you're not convinced sufficient potential buyers for your property will be accessing these web portals, then you could place a newspaper advert, or series of adverts, either locally or nationally. An advert in the Sunday Times Homes supplement, for example, will cost £340 (size: 2 columns by 5 cm). An advert in the Yorkshire Evening Post will cost £165 (6cm by 6cm box).

 

Swapping your home is another option, made possible through Swap-Homes. Sellers register their properties and where they would like to move to. If there is a match with another party, they can agree a straight swap or, more likely, a swap plus cash in one direction. It will be conducted as a private sale, with the website only enabling the match up. There are curently 8000 properties registered. One benefit is that you can't get stuck in a property chain. It's free to register your property until August 1st 2007, after which it costs £34.99.

 

Finally, if your house is particularly desirable (£500k+) you could approach a buying agent. Buying agents have a list of clients who are looking for property in the region and if one likes the look of your home you can arrange a private sale. The agent is paid by the buyer so this will cost you nothing.

 

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How to avoid 18% Capital Gains Tax on selling a second home

 

Second homes, whether in the UK or abroad, are liable for 18% tax on any capital gains profits on sale. If abroad, you may pay some tax in that country on the profits (dependent on their tax rules) and the UK Government then claims for the balance that takes you up to the 18%. But you can reduce that liability by PPR election (principal primary residence). If you don't actively elect one of your properties as your PPR with Revenue & Customs then you're stuck with the 18%. As a lot of people are unaware of this they don't actively elect, and there is no 'default' election to assist. PPR election must be undertaken within 2 years of your last property transaction. So if you have bought a second home in the last 2 years, or you have changed your primary residence in that period, or bought a third or fourth property, etc, or even if you have transferred ownership of a property to a spouse, you can apply. Whichever property you nominate as your PPR is exempt from tax on capital gains made whilst it is elected as your PPR. This means your other property or properties are then liable for the capital gains they make whilst not your PPR. Once you have actively engaged in PPR election you are free to switch your PPR nomination to which ever property you choose, as many times as you choose.

 

Once you're engaged in this process here's how to proceed. If you already own a second home and want to sell, then as long as you have lived in that home at least a couple of weeks in the current year (so all year round fully let is no good), you can elect it as your PPR with Revenue & Customs a few weeks before you sell and automatically get the final 3 years of ownership free of UK tax. Once you have sold you can re-elect your main home as your PPR again. This means that if you have owned the property for 3 years of less you'll pay no CGT at all. If you have owned it 5 years then you'll only pay tax on the first 2 years of capital gains. If it's risen by £100k in value over 5 years you'll pay 18% on £40k rather than £100k - a sizeable saving. The beauty of this 3 year relief rule is that it's not at the expense of the main home. You can nominate the second home as your PPR for just a couple of weeks around its sale before re-nominating your main residence again. Your main residence will be liable for capital gains for just those 2 weeks, whilst your second home immediately becomes tax-free for the last 3 years.

 

If you're planning on buying a second home (or third or fourth, or buying a new main house or switching a property's ownership to your spouse) then straight away lodge a private residence relief election with Revenue & Customs. This gives you two years to decide which property to act as your main residence. If in that time you conduct another property transaction the clock starts over again, so you could feasibly not make any nomination for 2,4,6 or 8 years in this way, but at the end of it be able to make a nomination that will be fully retrospective - allowing you to class the property you're now looking to sell as having been your PPR, or whatever PPR permutation suits you best.

 

So, whatever you do, enagage in the PPR election process, and stay in second homes at least a few days a year. You can pay zero capital gains tax on a second home by selling it within 3 years and nominating it as your PPR for a couple of weeks before the sale, so long as you've stayed in it a few days here and there. The rest of the time you can have it let out - giving you both rental gains and tax-free capital gains.

 

 

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Eco Homes

 

Go green and slash your household bills - and help save the environment while you're at it. Hi-tech insulation, ground heat pumps, wind turbines, composting toilets, 'grey' water re-usage, solar panels and more. Just be aware that the payback on many of these solutions is currently many years as they are still fairly new and fairly niche (approx payback: wind 8 years, solar 12 years). Give it some time though for the technology to develop and the mass market to adopt and they should become no- brainer savers. If you can't wait then Green Moves is a national property search website that covers only eco homes and green developments. Do your research and find out what premium the properties listed are commanding over non-eco properties in your area of interest. It's worth repeating that financial freedom is all about cashflow, so converting cash sat in the bank into permanently slashed household bills by adopting eco-technologies is a successful end in itself. But the best strategy may be to adopt gradually the different innovations as payback times come down. If however you are targeting an all-in fully green self-build pushing self-sufficiency as far as possible then waiting 5 years or so may give you the best chance of achieving this.  

 

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Resources 

 

Website or Document	Description
Moneysupermarket	Compare and find the cheapest mortgages, home and contents insurance and utilities
Motley fool	Property market and property funds news
Interactive Investor	Property market and property funds news and portfolio tool
Fidelity	Property funds trading service
Hoodless Brennan	Property shares trading service
Bloomberg	Global macroeconomic news
Moneyweek	Global and local macroeconomic news and insight into the property market
BBC	Used for global news, UK news, business news, economic news, personal finance news, market data.
The Times	Used for global news, UK news, business news, economic news, personal finance news, market data.
The Guardian	Used for global news, UK news, business news, economic news, personal finance news, market data.
Halifax House Price Index	House price index and market reports
Nationwide	House price index and market reports
Rightmove	The UK's number 1 property website - property search and market reports