Between the finances, home staging, viewings and legal documents, one thing that can easily slip a seller’s mind is the tax that they may need to pay when selling a home, namely Capital Gains Tax. In this blog, we look at what Capital Gains Tax (CGT) is, how to determine whether it applies to your property and what can be deducted if it does.
If you sell a property in the UK, CGT is a tax on the profits you make. For example, if you bought your house for £300,000, and then sell it for £325,000, you may be taxed on that £25,000 increase. Usually, you won’t need to pay tax when selling your main home, but when it comes to selling a buy-to-let property or a second home, then you will do. You may also need to pay CGT if your house is used as a business premise, or you lease out part of your property.
If you’re a basic rate taxpayer, you’ll pay 18% CGT, or 28% if you’re a higher rate taxpayer. Luckily, you can deduct buying and selling fees from your profit, including those charged by estate agents. If you’ve spent money improving or upgrading the property, the money you’ve invested counts against the increase too.
If you don’t make a profit on the sale of the property, or sell it for less than you bought it for, then this loss can be deducted from your CGT bills in the future.
All UK taxpayers have an annual CGT allowance too, which means they can earn a certain amount tax-free. In 2019-20, you can make a tax-free CGT of up to £12,000. Interestingly, couples who jointly own the property can combine their allowances, meaning they could have a gain of up to £24,000.
It’s important to note that this can’t be carried forward, so if you use your gain, you can lose it.
In the majority of cases, you won’t need to pay CGT when you sell the house that you are currently living in, because you will be entitled to Private Residence Relief. You receive this if:
However, you may need to pay CGT if you:
From April 2020, private residence relief will apply to the time you lived in the home, plus the final nine months of ownership, rather than the final 18 months. However, people who move into a care home, or have a disability, will still be able to claim for the last 36 months of ownership.
When it comes to letting relief, this will only be available to those who are in a shared occupancy with a tenant. Anyone who has lived in a property and now rents it out is likely to be hit by this change and, as a result, could face a larger capital gains tax bill. People will still be able to claim Private Residence Relief for any period where the property was their main home.
If you are left a home in a parent’s or relative’s will, you inherit the property at its market value at the time of death. There is no CGT payable on death, but the value of the home will be included in the estate, and inheritance tax may be required instead. If you decide to sell this property without having made it your own home, then there could be CGT to pay. This will be based on the increase in value between the date of death and the date when you sell, minus the related selling costs.
Considering selling your property and want to learn more about us and what we can do for you? Then please give one of our friendly offices a call today on one of the following numbers:
Radcliffe: 0161 723 1155
Burnley: 01282 427 445
Ramsbottom: 01706 48 9966
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