Do you have to pay capital gains tax?
Are you currently thinking about selling your home? If you are then you should know about Capital Gains Tax.
What is Capital Gains Tax?
Capital Gains Tax is a tax that becomes payable when you sell an asset that has increased in value since the time you purchased it. However, there are some exceptions provided by law under certain circumstances.
When do you have to pay Capital Gains Tax when selling a property?
Capital Gains Tax becomes payable when:
- you sell any property that is not your main home or;
- you sell buy to let properties
- you sell your main home and you have let it out a part of it or used it for business purposes
- you sell an Inherited property
When do you not have to pay Capital Gains Tax when selling a property?
If you own one home and you have lived in it as your main home since you have owned it, not let part of it out neither used it for business purposes, the total property is less than 5000 square metres, and you did not buy it to only to make a gain, then you do not have to pay Capital Gains Tax. You will get a tax relief called the Private Residence Relief. To find out if you are eligible for the Private Residence Tax Relief visit https://www.gov.uk/tax-relief-selling-home.
What is Capital Gains Tax Allowance?
You are granted an annual tax allowance. You only have to pay Capital Gains Tax on the profit that exceeds the annual tax allowance.
For 2020-2021 the tax free allowance is £12,300 per person. In simple words, if you can make a profit of up to £12,300 when selling your property without having to pay any Capital Gains Tax.
What if you are married or in a civil partnership?
Only one home per couple counts as your main residence at any one time if you are married or in a civil partnership.
However, remember that if you share ownership of the home with your spouse then you can double your allowance.
Will you have to pay Capital Gains Tax on your second home?
If the HMRC decided that a property is not your main residence, then you have to pay Capital Gains Tax when you make a profit on its’ sale.
Are there any ways to pay a reduced amount of Capital Gains Tax?
Yes. You should consider the following to try to reduce the amount of Capital Gains Tax you have to pay:
- Spouse’s tax allowance - You can double your Capital Gains Tax allowance if you share ownership of your main residence with your spouse.
- Different Capital Gains Tax bands – If you are a basic rate taxpayer you will probably have to pay a lower amount of Capital Gains Tax. Conversely, if you are a higher rated tax payer, the amount you will be paying in Capital Gains Tax will be greater. If your spouse is a basic rate taxpayer, then you can transfer the property to their name.
- Nominate a home – If you own more than one property and want to sell one, it would help if you nominate it as your main residence in advance with the HMRC. If you want to find out more on how you can nominate a home, which is beyond the scope of this article, please visit https://www.gov.uk/tax-sell-home/nominating-a-home
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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