Capital Gains Tax Property
CGT: You may be interested in our main Article on Capital Gains Tax rates and allowances.
You may also be interested to know how more about our services to help reduce your Capital Gains tax liability when you sell a buy to let property investment.
The frequently asked questions about Capital Gains Tax Property
As property accountants, we are regularly asked about Capital Gains Tax on property. We will look to answer the below questions in this Article.
“Are you paying too much Capital Gains Tax?”
“What are the basics of Capital Gains Tax Property?”
“Who pays Capital Gains Tax on UK property?”
“When is a Capital Gains Tax payment due?”
“What are the Capital Gains Tax rates on UK property?”
“How do I complete a Capital Gains Tax return?”
“Do I pay Capital Gains Tax when selling my home?”
“How does Letting Relief work for Capital Gains Tax?”
“How do I avoid paying Capital Gains Tax on UK property?”
“How does this affect our American readers?”
Are you paying too much Capital Gains Tax?
Our property tax specialists help over 1,000 monthly retained UK landlords and property investors to minimise tax whilst building their wealth.
There are many reasons why people pay far more Capital Gains Tax than they need.
This is because:
– They do not know what they do not know.
– They have not spoken to a tax specialist to go through their situation to see what tax reliefs are available to them.
– Their accountants or solicitors are not aware of the many reliefs available to their clients and are not taken advantage of.
– Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.
What are the basics of Capital Gains Tax Property?
As property accountants serving UK landlords that purchase buy to let properties, we know that Capital Gains Tax on investment and buy to let properties are a big factor in our clients’ financial considerations.
A Capital Gains Tax is a tax on the profit from the sale of a ‘non-inventory asset’. The most common capital gains are from the sale of property, bonds, stocks or precious metals.
If you sell a UK property, you may have to pay Capital Gains Tax on any profits made.
This tax is generally not due when selling your main home.
A Capital Gains Tax bill will usually be applicable when selling a buy to let property or second home.
You may also need to pay Capital Gains Tax if your home is partly used as a business premise or partly leased.
In 2020 receipts for Capital Gains Tax in the UK were over £10.6 billion, increasing £800 million compared to the previous year.
The Capital Gains Tax system was introduced in 1965 by Labour Chancellor Jim Callaghan.
Before this, capital gains were untaxed.
One of the main reasons for the introduction of the Capital Gains Tax was the significant growth in property values across the UK after World War II.
When first introduced in the UK, Capital Gains Tax was levied at a flat 30% rate.
The structure and rates of Capital Gains Tax have since undergone several major reforms.
We help UK landlords to reduce or avoid Capital Gains Tax on their property portfolios by providing professional accountancy advice and guidance.
Have a question about property investments, tax or being an expat?
There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.
Who pays Capital Gains Tax on UK property?
If you sell a residential property in the UK, you must report and pay any Capital Gains Tax due to HMRC within 30 days of selling it.
How and when you report Capital Gains Tax over your annual allowance depends on how the gain was made.
You pay Capital Gains Tax on buy to let properties, as well as the capital gain received from the sale of other properties not classified as your main home, including land, second homes, business premises and inherited properties.
Capital Gains Tax is paid on investment properties you own as an employed individual, an unemployed individual, a self-employed sole trader, or an individual in a business partnership.
You do not pay Capital Gains Tax on property owned and sold by a Limited company.
Corporation Tax is paid instead, currently held at 19%. This will rise to 25% from April 2023.
HMRC sees property held in a Limited company as part of a business and not a personal investment.
To report any capital gains, you will need calculations for each capital gain or loss reported, details of how much each asset was bought and sold for, the dates you took ownership and disposed of the asset, as well as any other relevant information such as the costs of disposing of the asset and any tax reliefs.
There are different rules if you sell your main home, live abroad, or are a company registered abroad.
HMRC provides clear guidelines on who pays Capital Gains Tax which is worth reviewing in detail.
We also recommend that you read the rules on Capital Gains Tax 30 days reporting and payment.
If you’re unsure of your liability regarding Capital Gains Tax, speak to one of our property accountants.
When is a Capital Gains Tax payment due?
Anyone who makes a taxable capital gain from UK residential property will have to pay any tax owed within 30 days of the completion of sale or disposal.
This is done by submitting a residential property return and making a payment on account.
If you normally complete a tax return, you report your capital gains on a Self Assessment tax return.
You do not have to complete capital gains pages if your only disposal is that of your main home.
If you make disposal of UK land or property, you may also need to report this disposal to HMRC on a separate return and pay any Capital Gains Tax due within 30 days of the date of completion.
This return is not necessary within the 30-day HMRC deadline if you have already disclosed the disposal on a Self Assessment tax return.
Additional details required by HMRC when submitting any Capital Gains Tax computation within 30 days of disposal include:
– Date of original purchase and sales of the property
– Capital purchase costs and legal fees associated
– Sale price minus any agency and legal fees
– Capitalised costs during the holding period of the property
– Any Capital Gains Tax reliefs open to you
To work out your Capital Tax Gain, review the HMRC information provided.
It is important to comply with the 30-day reporting rule when selling UK property.
If you fail to do so, you may be subject to penalties and interest payments from HMRC.
This 30-day reporting rule applies to non-residents even if you do not owe Capital Gains Tax.
HMRC gives clear guidance on Capital Gains Tax payments on UK property.
If you’re unsure whether you have a Capital Gains Tax payment due, speak to our property accountants.
What are the Capital Gains Tax rates on UK property?
In the UK, you’ll pay higher Capital Gains Tax rates on property compared to other assets.
Basic-rate taxpayers pay 18% on gains they make when selling property, while higher-rate taxpayers pay 28%.
Any capital gains will be included when working out your tax status for the year and could push you into a higher tax bracket.
All UK taxpayers have an annual Capital Gains Tax allowance meaning you can earn a certain amount tax-free.
The tax-free capital gains allowance is currently at £12,300, but it cannot be carried forward annually.
The amount of Capital Gains Tax paid on a property depends on the profit made when selling a property and the rates at which you are charged Capital Gains Tax.
HMRC use your personal income to work out the rates at which you pay Capital Gains Tax on property.
They add your taxable gains to your income and see which Income Tax band you fall into the year the sale was made.
You then pay Capital Gains Tax on the rates on the portion of your capital gain that is taxable.
To work out how much Capital Gains Tax you will pay on property, first establish:
– Total taxable gain – profit made from the investment
– Taxable gain minus any deductible expenses and the CGT allowance
– Your tax threshold and the applicable CGT tax rates
HMRC has provided clear guidance on Capital Gains Tax rates to assist you.
To gain expert advice on paying the right Capital Gains Tax rates on UK property, contact us today.
How do I complete a HMRC Capital Gains Tax return?
You will also need to submit a personal Self Assessment tax return to HMRC to show the gain and Capital Gains Tax associated with it.
If you are married or in a civil partnership, you will need to complete the 30-day report per person.
A taxable gain only exists where you have exceeded your annual allowance for the year.
Paying Capital Gains Tax on a property is relatively straightforward.
Once you have worked out your taxable gains if they are above your Capital Gains Tax allowance, you need to report them to HMRC.
Capital Gains Tax can be reported in two ways:
– Instantly via HMRC’s real-time CGT service online
– Annually in a Self-Assessment tax return if done within 30 days of selling the relevant property
If you opt to complete a Self-Assessment tax return, you must register with HMRC.
You can schedule a Capital Tax Gains consultation with one of our property accountants to assist you.
Do I pay Capital Gains Tax when selling my home?
You do not pay Capital Gains Tax if you sell your home.
This is based on you living in the home from the point of purchase to the point of sale.
You can claim Private Residence Relief (PPR), a CGT relief when selling a property for the time not lived in the house as a home.
Homeowners in the UK who sell their main residence do not pay Capital Gains Tax on their property.
If you are selling a property that functioned as your main residence, you don’t pay any Capital Gains Tax for the final nine months you owned that property, regardless of whether you rented it or not.
If you’re selling a property that is registered as your main residence and you let out part of it, you will be eligible for Private Residence Relief fr the percentage of the home you occupy.
You may face a Capital Gains Tax bill if you develop your home by converting part of it into flats or sell part of your garden or plot.
If you use more than one home, you can nominate which will be tax-free.
It makes sense to nominate the one expected to make the largest gain when you sell it.
You have two years from when you get a new home to make the nomination.
Married couples and civil partners can only have one main home, but unmarried couples can nominate a different home.
You would not get tax relief if you bought the home just to sell it and make a gain.
For advice on Capital Gains Tax when selling your home, speak to one of our expert accountants today.
How does Letting Relief work for Capital Gains Tax?
If you have let out part or all of your home, a proportion of any gain when you sell it could be taxable.
If you used to live in the property, you may be able to claim Letting Relief to reduce your Capital Gains Tax bill.
Letting Relief does not apply to buy to let property investors who let out properties and never live in them.
For 2020-21 tax returns, Letting Relief will only be available for people who were in shared occupancy with their tenant or tenants.
If you are letting the property when you come to sell, the previous 18 months of ownership qualify for Private Residence Relief rather than Letting Relief.
The exact amount of relief available will depend on the amount the home sells for.
Letting Relief can reduce the Capital Gains Tax payable on a property by up to £40,000 of tax-free gains.
To qualify for Letting Relief, you must:
– Already qualify for Private Residence Relief and have lived in it
– Have let out part or all of the property as residential accommodation
– Lived with the tenant
To book a tax consultation and discuss Letting Relief and Capital Gains Tax, contact us today.
How do I avoid paying Capital Gains Tax on UK property?
You do not have to pay Capital Gains Tax on UK property if it is a gift between husbands and wives, a transfer of assets between civil partners, a donation made to a charity, or if you have Capital Gains Tax losses brought forward from previous years.
Other ways to avoid paying Capital Gains Tax on UK property include:
– Use your £12,300 allowance
– Offset any losses against gains
– Consider an all-in-one fund
– Manage your taxable income levels
– Use your annual ISA allowance
– Contribute money into your pension to extend your basic rate tax band
You are allowed to deduct certain costs involved with buying and selling property from your gain when working out your Capital Gains Tax bill.
– Solicitors and estate agents’ fees
– Stamp duty when buying the property
– Costs when improving assets such as an extension
You are not allowed to deduct costs involved with the upkeep and maintenance of a property.
The main relief from Capital Gains Tax in the UK comes from Private Residence Relief.
How does this affect our American readers?
Americans that sell UK property, be it a home or an investment, may have to pay Capital Gains Tax in the UK and US. There will be a US tax relief n the UK CGT paid to HMRC.
To learn more, make sure you head over to our sister company Purser Tax that helps British people save tax in the US and Americans save tax in the UK.
It is one thing to be tax-efficient in the UK or the US; it is another thing to be tax-efficient across the Atlantic.
This is why you need to get a tax advisor that truly understands international tax.