Capital Gains Tax (CGT) is something you have to pay if you sell anything at a profit. This goes for most things you buy. However, when it comes to property things are slightly different.
Intrested in selling your house? We can help
Do you have to pay taxes on selling your home?
When you're selling your home there are two potential taxes that you should be aware of that you may be subject too. These two taxes include:
- Capital Gains Tax: Which we will go into more detail in this blog in terms of exactly what it is, and whether you have to pay it.
- Inheritance tax: IHT is paid on an estate of someone who has died, the amount you pay and whether you have to pay depends on the value of your house as there are certain thresholds. The standard charge for inheritance tax is 40%, but it's only charged on the amount above the threshold.
What is Capital Gains Tax?
Before understanding whether you have to pay Capital Gains Tax when selling your house, it's first essential to understand what it actually is. CGT is essentially a tax that you pay on any profit made when you sell an asset, which in this example is a property, only if it has increased in value.
An example would be, if you bought your property for £25,000 and later sold it for £50,000, you made a gain of £25,000 which will be subject to Capital Gains Tax. It's a tricky subject however and there's quite a bit too it, so it can be quite complex to understand whether you actually have to pay this tax, which can be significant, or not.
Do you have to pay Capital Gains Tax?
If the property is your home and you’ve lived there most of the time or have lived there within the last three years, you can claim Private Residence Relief on profit made from its sale. This means you won’t pay Capital Gains Tax.
You must not have ever rented out any part of the house (having a single lodger does not count towards this) or used any of it solely to conduct business. You must also not have bought the property simply to make a profit. Similarly - married couples are only allowed to count one property as a main home at any one time.
There are a few other situations where you don’t usually have to pay CGT:
• If the property was a gift from a husband, wife, civil partner or a charity
• If the purpose of your business is to buy and sell property e.g., you’re a property developer. Instead you will pay Income tax (if you’re a sole trader or partner) and Corporation tax (if you’re a limited company)
• If a dependent relative lived in the property
Selling a property that is a rental, holiday let, land or inherited property means you can’t claim Private Residence Relief and may need to pay CGT.
How much CGT do I need to pay?
If you've established that you need to pay Capital Gains Tax on selling your home, then the next step is to figure out exactly how much you expect to be spending. It's a little bit complicated to work out, because CGT is calculated on your overall income for that year.
If you are a higher rate income tax payer then you will have to pay 28% on the gains from any residential property sale.
The amount a basic rate tax payer pays completely depends on the size of the gain, but if you stay within the basic rate band then you'll need to pay 18% on the gains.
We can buy your home fast, just answer a few brief questions
As cash buyers, we buy any property, in any condition, in any location. If you want to sell your property quickly or want to find out more about how we can help, then get in touch today. All legal fees are included in our service so what we quote you is what you’ll receive.