July, 2022
Capital gains tax (CGT) is payable when you sell an asset that has increased in value since you bought it. The rate varies based on several factors, such as your income and size of gain. Capital gains tax on residential property may be 18% or 28% of the gain (not the total sale price).
Usually, when you sell your main home (or only home) you don’t have to pay any capital gains tax (CGT). However, in some circumstances you may have to pay some. For example
Some of these points may be open to interpretation and dispute, so if you are in any doubt, it is sensible to seek advice. An independent financial/ tax adviser can give you their unbiased view on whether your home will be exempt from CGT.
You only pay capital gains tax (CGT) on gains that exceed your annual allowance. The tax-free allowance is currently £12,300 per person in 2021-2022. This means your property can increase by this amount before any CGT will be payable on the sale. Any amount above this will incur CGT property rates.
If HMRC decides that a property isn’t your main residence, you will have to pay capital gains tax (CGT) on any gain in its value above your CGT allowance.
If your buy-to-let property has risen in value by more than your capital gains tax allowance by the time you sell it, you’ll have tax to pay.
If you give a property to your spouse or civil partner, or to a charity, there won’t be any CGT to pay.
If you inherit a property (and any inheritance tax due has been paid by the estate) then there won’t be any further tax to pay until you sell the property. The gain will be measured from the date at which you acquired the property.
If you sell a property that was occupied by a dependent relative, then you may not have to pay CGT. Ask your adviser about this.
Working out exactly how much capital gains tax (CGT) you must pay means doing a few sums.
If you’re a higher-rate taxpayer, it’s quite simple. Just subtract your CGT allowance from your gain, and your bill will be 28% of the remainder.
If you’re a basic-rate taxpayer, it’s a bit trickier. You’ll need to work out if your gain-minus-allowance will lift your income into the higher-rate band. Everything above the band will be taxed at 28%, while everything below it will be taxed at 20%. Your adviser can help you calculate it accurately.
Please note, these figures are based on selling a residential property. Other assets may be calculated differently.
If you have capital gains in a particular tax year, you should apply to submit a tax return if you don’t do so already.
For property sold in the 2019-20 tax year, you’ll have until the next self-assessment tax deadline on 31 January 2021 to declare any profit made from the sale and pay the tax owed.
Since 6 April 2020 there have been changes to how customers declare and pay Capital Gains Tax. UK residents who dispose of a UK residential property that is not their main home and make a Capital Gain where there is tax to pay, should use the online service to inform HMRC and pay the tax due within 30 days of completion.
Non-UK residents disposing of UK land and property should also use the online service, regardless of whether there is a gain or not.
If you make a taxable capital gain from UK residential property, either as a landlord or second homeowner, you will have to pay the tax owed within 60 days of selling the property.
There are various ways you can minimise or even eliminate a capital gains tax bill:
Remember that every person has a CGT allowance, so if you are the sole owner of a property, you can double your allowance by sharing ownership with your spouse.
Basic rate taxpayers pay lower CGT, so if you are higher-rated and your spouse isn’t, you could reduce your CGT bill by transferring all or part of the property into their name. Speak to a financial advisor about the most efficient way to do this, to make best use of both your allowances.
If you have used up some or all of your CGT allowance for a particular year, consider delaying the sale of your property to the next tax year.
If you own several properties and wish to sell one, you may be able to reduce or eliminate the CGT bill by nominating it as your main residence in advance. The rules on doing this are strict, so talk to your financial adviser about how to do this properly.
It is possible to deduct some costs when working out your CGT bill including legal and estate agents’ fees, and stamp duty incurred when buying the property. Costs involved with improving assets, such as paying for an extension, can also be considered when working out your taxable gain. However, you’re not allowed to deduct costs involved with the upkeep of the property. You cannot deduct certain costs, like interest on a loan to buy your property.
If you are selling a property as part of probate, click here to learn more about the probate process.
If you want to find out more about Inheritance tax, click here.
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