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Capital Gains Tax on Property UK

Vincent Nyoike
Vincent Nyoike Tax

If you wish to sell your house, then you need to pay capital gains on the profits you make from its disposal. Capital gains tax is charged on second homes, buy-to-let properties, business premises, land and inherited properties. However, you don’t need to pay capital gains tax when selling your main home. For properties sold after 27 October 2021 in the UK, taxes owed are due within 60 days from the date you complete the sale.

The following are highlights of capital gains tax on property in the UK.

How Much is Capital Gains Tax on Property UK?

Capital gains tax rates on property UK are 18% for basic rate taxpayers and 28% for high rate taxpayers. However, the capital gains tax rate on shares are 10% for basic rate taxpayers and 20% for high rate taxpayers.

You need to be aware that any capital gains will be included in your other income sources when calculating your income tax and could push you into a higher tax bracket.

When Not to Pay Capital Gains Tax on Property UK

There are instances when you don’t need to pay capital gains tax on property UK. They include:

  • When you gift a property to your husband, wife, or charity
  • You can get tax relief if the property is a business asset
  • If the property was occupied by a dependent relative

How to Calculate Capital Gains Tax on Property UK

Capital gains tax is calculated based on the profit or gains you make from the sale of a property. You can calculate the gains by subtracting the amount you bought the property for from the sale price. You can deduct costs such as legal fees and agent fees you incurred while selling or buying property. You can also include costs you incurred to improve a property.

Calculating capital gains tax on a property requires you to deduct the amount you got from the sale of the property from the amount you paid for the property. If the combined capital gains are over your allowance, then you need to report that as capital gains tax.

Capital Gains Tax on a Second Home

You don’t need to pay capital gains tax on the sale of your second home. If you have two or more homes, then you need to nominate which one is your primary home. The best advice would be to nominate the one you expect will give you maximum gain as your second home. Married people can only nominate one house as their primary home while unmarried couples can nominate a primary home each.

Read also: Capital gains tax on cryptocurrency UK.

Capital Gains Tax on Buy to Let Property

If the value of your buy-to-let property has risen, then you would need to pay capital gains tax for the property. This is even if it is the only property you own.

Capital Gains Tax on Inherited or Gifted Property

If you inherit a property, then it is liable to capital gains tax based on its market value or sale price. However, if you sell the property without making it your home, you need to pay CGT based on its value when you acquired it and the value when selling it, then minus the selling costs.

However, if you give your property to your spouse, civil partner, or charity, it is exempt from capital gains tax.

Capital Gains Tax On Foreign Property

If you live in the UK and you dispose an overseas property, you are liable to capital gains tax. You will also need to pay tax in the country the property is situated. However, you can claim tax relief if you are taxed twice.

However, you can avoid capital gains tax on the foreign property if:

  • The foreign property is available to everyone as the primary residence
  • You declare the global home as your primary residence

Other Taxes Due on UK Property

Apart from the capital gains tax, there are other taxes levied on properties in the UK. For instance, when you buy a home, you are liable to stamp duty depending on the purchase price. The tax rate depends on whether the property is your main home, second home, or buy-to-let property.

Also, if you are letting your property, then you may also need to pay income tax on the rent you receive. If you are a resident, you need to pay council tax and if you inherit a property, then you are liable to inheritance tax on the property’s value.

Read also: Capital gains tax on Cryptocurrency UK.

Deductibles from Capital Gains Tax Bill

When selling property, apart from the annual allowance, you can make some deductions from your profits. However, you can’t deduct the interest you pay on your mortgage from your tax bill. However, you can include costs of altering the property such as remodeling costs. You can then pay tax on the balance. These deductions include:

  • House agency fees
  • Attorney fees
  • Stamp duty

How to Avoid Capital Gains Tax on Property UK

There are measures you can take to avoid or lower capital gains tax in the UK. These measures include:

1. Make use of your partner’s allowance. If you are the sole owner of the property, you can share ownership with your spouse and double your allowance.

2. Time your sale. If you want to sell your property, you can delay the sale until the year when you have not used your capital gains allowance.

3. Nominate the property as your main home. If you have several properties, you can nominate the one you want to sell as your primary home. HMRC does not require capital gains tax from the sale of a primary home.

4. Deduct buying and selling costs. You can lower capital gains tax on a property by deducting costs you incurred while selling or buying a property. These costs include legal fees, stamp duty, etc.

5. Make use of capital gains tax bands. If you are a high rate taxpayer and your spouse is a basic rate taxpayer, you can lower capital gains tax on a property by transferring the property to their name before making a sale.

6. Offset your losses. If you have sold other assets at a loss, you can offset those losses from the gains on the sale of a property. You can claim such losses for up to four years after when they were incurred.

Summary of Capital Gains Tax on Property UK

When you sell a property that is not your primary home in the UK, then you are liable to a capital gains tax. However, there are measures you can take to lower your capital gains tax. However, gifts to your spouse, civil partner, or charity are not liable to capital gains tax. But if your child inherits the property, it is liable to capital gains tax based on its market value.

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