A complete guide to Capital Gains Tax for UK residential property owners

A complete guide to Capital Gains Tax for UK residential property owners

06/12/2022

Capital Gains Tax (CGT) may be owed if you sell a UK property and make a profit. Normally you do not have to pay CGT when you sell you main (or only) home. However this is not always the case and a liability may arise if:

• You have not lived in the property throughout ownership
• You have sub-let part of the property
• The property includes significant land and other buildings
• You purchased the property with the intention of selling it to realise a gain.

Considerations such as property valuation, length of ownership, and your individual financial situation all play a role in determining your final tax bill.

If you make a profit, how much of it will you have to pay in taxes?

You will only be required to pay CGT if your total capital gains in the given tax year exceed your annual allowance. The current annual allowance is £12,300 but this is being reduced to £6,000 in April 2023 and then to just £3,000 in April 2024.

For higher rate tax payers calculating the tax on the gain is relatively straight forward. You deduct your annual allowance from the gain and your tax bill will be 28% of that figure.

For basic rate tax payers the calculation is a little more detailed. If your gain, after deducting your annual allowance takes your total taxable income into the higher rate band the amount that sits in the higher rate band will be taxed at 28%. The amount that is within the basic rate band is taxed at 18%.

To reduce your tax bill as much as possible when selling a UK home, familiarise yourself with the capital gains tax regulations. The laws for capital gains taxation are complex, but knowing them might save you a lot of money.

What kind of tax relief is available?

Gains from the sale of a primary or secondary dwelling may be exempt from capital gains tax if the seller qualifies for Private Residence Relief.

If you have previously occupied the same dwelling as your renters, you may be entitled to Letting Relief.

When I inherit property, do I have to pay CGT?

If you inherit a property, and any inheritance tax is paid by the estate, there will not be any further tax to pay until you dispose of the property. Upon such a disposal the “cost” of the property to you, when calculating any gain, will be the value of the property when you inherited it.

If you want to avoid paying capital gains tax while selling an inherited home, expert guidance is essential.

When Does a Person Have to Pay Capital Gains Tax on a Second Home?

Generally, if a property is not your main residence you will have to pay CGT on any gain that is not covered by your CGT annual allowance. Considerations such as property valuation, length of ownership, use of the property and your individual financial situation all play a role in determining your final tax bill.

Don’t delay notifying HMRC

Since October 2021 you only have 60 days from the time of sale to notify HMRC of a gain arising from the sale of a UK residential property and to pay the CGT liability arising.

How we can help

The regulations regarding the taxation of capital gains are complicated and subject to change. If you want to sell a home in the UK without having to pay capital gains tax, you should consult a tax expert beforehand. This could be well worth the price you pay for it, as understanding CGT can save you a great deal of money.

At JW Hinks, our dedicated tax team have spent years helping people make sure they minimise or eliminate their CGT bills in ways that satisfy the regulators. If you would like to discuss how we can help you to do the same, call us on 0121 456 0190.