We explain capital gains tax on UK property, breaking down everything you should know from rates to working out your gain so you know how much to pay.
When do I pay capital gains tax on property?
Capital gains tax (CGT) is payable when you sell a residential property at a profit. The sale of your home will not result in a CGT liability if you have lived in it for the whole period you have owned it, providing you have not elected for another property to be treated as your main residence. You may also incur a CGT liability on the sale of your home if you’ve used part of your home for business purposes or have leased out any part of the property. Second homes and buy-to-let properties will usually be subject to CGT.
When is my payment due?
Gains arising on UK residential property sales completing after 5th April 2020 must be reported within 30 days of completion. The CGT must be paid by the same date.
This is a very short time scale to calculate and report the tax due, it is therefore key to ensure you are prepared well in advance to avoid unnecessary penalties being levied by HMRC.
Please note that there are some circumstances where you do not need to report the gain to HMRC.
If your gain is reportable and you are registered for self-assessment, the gain must also be recorded on your self-assessment tax return.
How do I calculate my gain?
The gain subject to CGT is broadly the difference between the sales price (after deducting costs to sell such as legal fees and estate agents fees) and the property’s original cost (including incidental costs of acquisition such as stamp duty, legal fees etc). In some circumstances costs incurred improving the property can be offset against the gain. The rules around what expenditure can be claimed can be complex.
Private Residence Relief and lettings relief may be available to reduce the proportion of the gain subject to CGT.
Private Residence Relief
You do not pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:
- you have one home and you’ve lived in it as your main home for the whole time you’ve owned it
- you have not let part of it out – this does not include having a lodger
- you have not used a part of your home exclusively for business purposes
- the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
- you did not buy it just to make a gain
If you’ve let out part of your home, part of your gain when you sell it could be taxable. If you lived in the property, however, you may be eligible to claim lettings relief.
HMRC is clear that this type of relief isn’t for buy-to-let investors who have never lived in the property. It is only for people who were in shared occupancy with their tenants. The amount of letting relief you can claim for will be the lowest of these amounts:
- Gain you receive from the let portion of your home
- Amount of private residence relief you can claim
What are the tax rates?
It’s worth noting that all taxpayers are entitled to an annual CGT exemption (£12,300 in 2020-21). Any gain falling within the exemption is not subject to CGT.
After deducting the annual exemption, the net taxable gain will be subject to CGT at the following rates:
- Any gain falling within the basic rate band will be taxed at 18%
- Any gain falling within the higher or additional rate band will be taxed at 28%.
If you need assistance calculating your CGT liability, Bracey’s will be happy to help. We will ensure your CGT liability is minimised by claiming all available reliefs and ensuring all eligible costs are deducted when calculating your taxable gain.
It’s important to be one step ahead with your taxes, so you can plan the future you want. We help you get there through advice and assistance in completing more complicated transactions.