When you make a profit from selling an asset in the UK, such as stocks and shares or a property, typically you have to pay Capital Gains Tax. However, if you are a UK resident and the property is your main residence, any ‘profit’ you make is usually exempt from tax.
If you are selling a property which isn’t your main home, perhaps one you have inherited or let, if you have made a ‘gain’ this could be subject to Capital Gains Tax (CGT). How much CGT you will pay will depend on a number of factors, including:
- If you are/have sold any other assets
- Whether the home was ever your main residence
- Buying and selling costs, including stamp duty
- Investment in the property, for example building an extension or turning a house into flats
- Whether you are a UK resident selling, or from overseas
- If you have made CGT losses in the past which have been recorded and carried forward
In addition, if you have made any losses on other assets in the same year, it may be possible to offset this loss from gains you have made from a property.
Capital Gains Allowances and tax rates
Normally, when you sell a property you have profited from, the Capital Gains Tax you pay will be determined by the level of your other income. At the basic rate, tax is chargeable at the rate of 18%, and at the higher rate, 28%.
If the property is the only asset you have sold during a year, a Capital Gains Allowance can be applied. For 2019/20 this is £12,000, per person. If the net gain you made from selling a property was £24,000 and you owned the property solely, CGT would apply to £12,000. If two people owned the property, there will be no CGT to pay as both of your allowances are likely to apply.
Private Residents Relief
If you lived in the property at any point, you can claim ‘Private Residents Relief’ (PRR). This allows you to deduct any CGT owed from the time you lived in the property, and in addition, the last 18 months of property ownership. If disabled or you are moving into a care home, this can be extended to 36 months.
This relief won’t always be available. For example if you are living in a house and convert it into flats, it is not applicable. Tax can also change annually and from April 2020, PRR will be reduced from 18 months to 9 months – although it will remain the same for those disabled/moving to a care home.
Lettings Relief
This relief may apply in addition to PRR if you sell a property which has been both let to tenants, as well as been your main residence during the period of ownership. The maximum amount of relief per owner (even if you are a couple) is £40,000
For more information on how Private Residents Relief and Letting Relief are applied, visit: https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief
Buy and selling cost deductions
Fees you pay to buy and sell a property including the cost of an agent, the legal fees and crucially any stamp duty costs can be deducted from the profit/gain you have made from the property’s increase in value.
Property maintenance
From a tax perspective, there is a difference between deducting general property maintenance, for example servicing a boiler to upgrading the property with an extension with the intention of enhancing its value. General maintenance can be deducted from rental income during the same tax year, but major upgrades are deductible from Capital Gains Tax when you sell the property.
Your CGT tax bill is normally payable at the end of January the following year, but from April 2020, it is planned to have to be paid within 30 days of the sale.
For overseas residents selling a property, Corporation Tax will be charged from April 2019 instead of Capital Gains Tax, whether the gains are made from UK property or land for all non-resident companies. If however, you bought your property before 6th April 2015, the standard approach for calculating the gain may be used. This is an extremely complex area from a tax perspective, so it is best to seek independent, expert tax advice, however, you can find out more by visiting: https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-calculating-taxable-gain-or-loss
Source: https://www.gov.uk/tax-sell-property
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