You will incur capital gains tax (CGT) when you dispose of property. The one exception to this is when you are selling your main residence. You may want to read about Tax Relief for Homeowners to find out more about Private Residence Relief and Lettings Relief and how it affects your CGT liability. In all other situations such as selling a holiday home, second home or buy-to-let property, capital gains tax will need to be paid where you make a profit.
How to pay your CGT
It is your responsibility to calculate your CGT bill, declare it and pay it. At the moment, this is done via your self-assessment tax return so although you can do this as soon as your property is sold, the official deadline you must adhere to is the personal tax return deadline of 31 January.
CGT Rates on Property
CGT applies to gains made on disposals of various other assets too, but there is a higher rate of CGT on the sale of property specifically. For those that fall in the basic rate income tax bracket the rate is 18%, whilst those in the higher and additional income tax band need to pay 28%. Be sure to pay attention to whether the sale of the property will push you into a higher tax bracket as this will have to be accounted for in your CGT calculation.
The other thing to bear in mind is your annual CGT allowance. Every tax payer is entitled to an annual allowance that is tax free. For 2021/22 the allowance is £12,300 (or up to £11,700 for the tax year 2018/19). Be sure to deduct this from your gain when calculating your tax bill. You are unable to carry this allowance forwards so if you do not use it one year, the allowance is gone.
How to reduce your CGT
You can minimise your CGT bill by deducting legitimate costs. Be sure to save all supporting documents in order to claim for these against your gain:
- Solicitor fees
- Estate agent fees
- Stamp duty when the property was bought
- Costs involved to improve the asset such as paying for an extension (however you are not allowed to deduct costs for maintenance of the property)
Changes coming in 2020
From April 2020 new rules will apply to all UK resident individuals as well as non-resident individuals and companies. A new CGT return will need to be made for the sale of every property, which holds a 30 day deadline to be submitted from the date of sale completion and includes payment to be made within the same timeframe. Where the rule will not apply is when the disposal of the property is eligible for full private residence relief, is covered by the annual exemption (CGT tax-free allowance), or unused losses. You will also not have to submit a CGT return where you sell a foreign residential property that is covered by a CGT double taxation agreement.
For non-UK residents, the rules have been extended. Currently, you are already obliged to report and pay for CGT of residential properties within 30 days. From April 2020 you will be required to do so for all types of property including non-residential.
For any help you may need calculating your CGT or submitting please do get in touch via the contact form below.