Capital Gains Tax on the sale of residential property UK
Capital Gains Tax (CGT) is a tax on the profit gained from the sale of valuable items or assets. The most common capital gains are realised from the sale of stocks and property; mainly the sale of second homes and buy-to-let property sales.
When you sell a property in the UK, you may need to pay Capital Gains Tax on the gain you make. You will usually be issued with a CGT bill when selling a buy to let property or second home, but generally not when selling your main residence. However, you may need to pay CGT if your home is partly used as a business premise, or if you lease part of your property out.
You may also need to pay CGT on an inherited property, which will be dependent on the value of the person’s estate, and if you sell the property without having made it your own home. The tax you pay will be assumed on the property’s worth when you sell it, compared with its value on the date of death. If the value has increased, you will have made a taxable gain.
How much is Capital Gains Tax?
CGT is only charged on the gain you make after selling a property, rather than the full amount you sell the property for. To work out your gain, you deduct the amount you originally paid for the property from the sales price, plus you can also deduct reasonable costs including fees and stamp duty.
Basic rate taxpayers will pay 18% Capital Gains Tax, or 28% if you pay higher rates of tax, on gains from disposing of residential property, and 10%, or 20% as a higher rate taxpayer, on other chargeable assets. You will only need to pay these tax rates on the gains that exceed your capital gains allowance which changes each tax year.
The CGT allowance in 2022-23 is £12,300, which is the same as it was in 2021-22. This is the amount of gain you can make from selling the property this tax year before any tax is payable.
If your assets are owned jointly with another person, you can both use your allowances, which can effectively double the amount you can make before CGT is due. If you are married or in a civil partnership, you are free to transfer property assets to each other without any CGT being charged.
Declaring Capital Gains Tax
You have 60 calendar days from the date of completion to submit a ‘residential property return’ to HMRC and make a payment on account for Capital Gains Tax on the sale of residential property in the UK. For property sales made between 6 April 2020 and 26 October 2021, the window to pay your CGT bill was 30 days.
You must report and pay any tax due using a Capital Gains Tax on UK property account via their website. Note that you need to be registered for any Personal Tax Account to report the sale. If you usually fill in a tax return, you must also report any Capital Gains, even if you have already used HMRC’s online service.
What information will HMRC need for CGT?
They will need to know the full address and postcode of the property, the date you acquired the property, date you exchanged contracts when selling the property, date you stopped being the property’s owner and completed the sale, and the period that you lived in the property, if relevant, with exact dates.
Financially, they will enquire the value of property when you first owned it and the value of property when you sold it. They will also need to know costs incurred when buying and selling the property, and how much you spent on making any improvements to the property.
Which other tax on UK property may be payable for UK residents?
Depending on the amount of the property, when you buy a home, you may need to pay stamp duty on the purchase price. The amount depends on whether the property is your main home or a second home or buy to let investment.
If you’re letting out a property, you’ll probably need to pay income tax on the rent you receive. Looking for Tax Return Advice for Landlords? Contact us today.
Capital gains tax on your main home
In most cases, you will not need to pay CGT when selling the property you live in due to ‘private residence relief’. That said, you may have a CGT bill to pay if you:
- develop your home e.g. convert part of it into flats
- sell part of your garden, and your total plot – including the area you’re selling – is more than half a hectare (1.2 acres)
- let out all or part of your home – this doesn’t include having a single lodger if you are living on the property, too
- use part of your home exclusively for business
- moved out of your property nine months or more ago e.g. to move into a partner’s home
Remember, you will not get tax relief if you bought your home just to sell it and make a gain.
Need help with your CGT calculation and submission?
HMRC’s standards on whether CGT is payable can be complex, so if you are selling a property and are not sure whether there will be Capital Gains Tax to pay, it is a good idea to take expert advice.
Passman Leonard can take care of this for you. We can take the worry away and complete your tax calculation, submit it to HMRC and tell you what to pay. We offer great value, and fast, accurate accounting support to small-medium-sized construction businesses around London.
Our small business accounting packages will help you understand your finances and ensure that you meet legal and compliance requirements with Companies House and HMRC whilst ensuring the tax efficiency of your business.
Get in touch today on 01895 434515 or contact us via our email address info@passmanleonard.co.uk if you have any questions about Capital Gains Tax.
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