Capital Gains Tax
Selling Your House: Capital Gains Tax Explained
Need help with Capital Gains Tax? Don’t worry, we’ve got you covered. From what it is and when to pay it to how you can reduce your Capital Gains Tax bill, read on to find out more.
What is Capital Gains Tax (CGT)?
In the UK, Capital Gains Tax (CGT) is a tax you need to pay on the profit you make when you sell a property that’s not your main home. This can include:
Do you need to pay Capital Gains Tax if you sell your home?You don’t normally need to pay Capital Gains Tax when you sell your main residence. Your property is exempt from CGT if you tick all the following boxes:
When you need to pay Capital Gains TaxUsually, you need to pay Capital Gains Tax (CGT) when selling a home that’s not your main residence. In the UK, for properties sold on or after 27th October 2021, you must report and pay it within 60 days of completing your sale.
How much is Capital Gains Tax?Capital Gains Tax is based on the profit you’ve made from the property sale, not how much it sold for in total. This is usually the difference between what you paid and the amount you got when it sold. If the sale price is lower than you paid for the property, then you haven’t made any capital gains, so don’t need to pay Capital Gains Tax.
Capital Gains Tax allowance for 2022/23
The Capital Gains Tax allowance for 2022/23 is £12,300. This means you can make £12,300 in capital gains (i.e. a profit on a property sale) before paying CGT. You can’t carry over any unused allowance into the next tax year.
Capital Gains Tax allowance for 2023/24
In the 2022 Autumn Statement, the UK government announced that the Capital Gains Tax allowance will be cut from £12,300 to £6,000 in 2023-24. It’ll be cut again to £3,000 from April 2024.
How to calculate your Capital Gains Tax
1. Work out your gain
Work out your gain by taking the property sale price and deducting what you paid for it.
2. Subtract your expenses
Subtract any allowable expenses, like legal fees, estate agent fees and stamp duty. You can also include the costs of any improvement works you’ve paid out - for example, that beautiful extension.
3. Subtract CGT exemptions
Subtract any Capital Gains Tax exemptions or reliefs you’re eligible for. If you ever lived in the property - even for a short time - you might be able to claim some private residence relief.
4. Apply your rates
Work out how much you owe based on the CGT rates on the property. This will depend on how much taxable income you had in the tax year you sold the house.
If you’re a basic rate taxpayer, you’ll pay 18% Capital Gains Tax on the profit or gain you’ve made from selling the property. But you’ll pay 28% tax on any amount above the basic tax rate. If you’re a higher or additional rate taxpayer, you’ll pay 28% on all gains from residential property.
Capital Gains Tax on inherited or gifted property
When you inherit a property, you’ll inherit it at its market value at the time of the previous owner’s death. No one will need to pay CGT at this stage, but the home’s value will be included in the person’s estate. Depending on the size of this estate (assets minus any debts), you may need to pay inheritance tax.
If you decide to sell the property and haven’t made it your home, you might have to pay CGT. How much you pay will be based on the property’s value when you sell it, compared with how much it was worth on the date of death.
Lucky enough to have been given a home as a gift? Are you wondering how much your house is worth today? The property’s value will still be included in inheritance tax calculations if the person who gave it to you passes away within seven years. If you sell the property, the CGT will be based on the increase in value between the date you were given the house - not the date of their death - and the date you sell it.
How Capital Gains Tax is calculatedWhen the property is inherited, the CGT is the property's value when you sell it, compared to how much it was worth on the date of death.
When the property is gifted, the CGT is the property's value when you sell it, compared to how much it was worth on the date you were given it.
Capital Gains Tax FAQs
Here are some more of the most common questions we’re asked about CGT.
How long do you have to keep a property to avoid Capital Gains Tax?
In the UK, there’s no specific time to keep a property to avoid CGT. It usually applies when you sell a property that’s not your main residence - regardless of how long you’ve owned it.
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