UK Capital Gains Tax on Residential Property
Capital gains tax on residential property in England
Capital gains tax (CGT) is a tax on the profit you make when you sell (or ‘dispose of’) an asset that has increased in value. This includes most asset types, including residential property.
When do I have to pay CGT on residential property?
You only have to pay CGT on residential property if you sell it for more than you bought it for and if the property is not your main home. If you sell your main home, that you’ve lived in for the entire time of ownership, you are usually exempt from CGT under principle private residence relief.
How do I calculate my CGT liability?
To calculate your CGT liability, you need to first work out your capital gain. This is the difference between the sale price of the property and the acquisition cost. The acquisition cost is the amount you paid to buy the property, plus any costs associated with the purchase, such as legal fees and stamp duty.
Once you have worked out your capital gain, you need to deduct any allowable losses. Allowable losses are losses that you have made on the sale of other assets, such as shares or investments.
Finally, you need to apply the CGT rate to your net capital gain. This will give you the amount of CGT that you owe.
The rate you pay is based on your income tax rate for the year. The CGT charged on residential property, after your tax free allowance of £6,000, is taxed at 18% using the remainder of your basic rate. The rest of the gain charge at 28%.
How do I pay CGT?
You must report and pay any CGT on residential property within 60 days of selling the property. You can do this online. A tax agent can also complete this for you.
If you are selling a property belonging to the estate of someone who has died, you will need to include this information when reporting the estate to HMRC.
Are there any exemptions from CGT on residential property?
There are a few exemptions from CGT on residential property. These include:
- Selling your main home
- Selling a property that you have inherited
- Selling a property that you have let out for less than 6 months in a year
- Selling a property that has been used as your business premises
If you are unsure whether you are liable to pay CGT on the sale of your residential property, you should seek professional advice from a tax accountant.
CGT can be a complex tax, and it is important to seek professional advice if you are unsure of your liabilities. However, by understanding the basics of CGT, you can take steps to reduce your tax bill.