Capital Gains Tax (CGT) might sound complicated, but if you’re thinking of selling a property, it’s something you need to get familiar with.
Whether you’re selling a second home, a rental property, or even giving a property away, CGT can impact the profit you make.
Let’s break down everything you need to know about how CGT applies to property in the UK. From understanding what counts as a ‘disposal’ to knowing how much tax you’ll owe and how to report it, we’ve got you covered.
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▪ Capital Gains Tax (CGT) is paid on the profit you make when selling or ‘disposing’ of a property.
▪ Disposals include selling, gifting, or transferring property. Inherited property is generally covered by Inheritance Tax, not CGT.
▪ Main residences are usually exempt from CGT, but other properties may be subject to it.
▪ Basic rate taxpayers pay 18% on property gains, while higher rate taxpayers pay 24% from April 2024.
▪ CGT on residential property must be reported within 60 days of the sale.
▪ Non-residential assets have different reporting rules; these are reported through Self Assessment or online.
▪ To report CGT, you need the dates, values, costs, and evidence of market valuation.
▪ n.b. Stay Sharp, Stay Savvy and Keep Winning!
Skip right to…
- Understanding Capital Gains Tax (CGT) on Property 🏡
- 1- What is Capital Gains Tax?
- 2- What Qualifies as a ‘Disposal’?
- 3- Inheriting Property
- 3- Do You Need to Pay CGT When Selling Your House?
- 4- How Much CGT Will You Pay on Property?
- 5- Reporting Capital Gains
- 6- What If You Don’t Normally Submit Self Assessment?
- 8- Information Needed for CGT Reporting
- 9- Practical Tips for Minimising CGT on Property
- Conclusion
Understanding Capital Gains Tax (CGT) on Property 🏡
1- What is Capital Gains Tax?
Capital Gains Tax is charged on the profit (the ‘gain’) made when disposing of an asset. The ‘disposal’ can mean selling, transferring, gifting, or swapping an asset. Importantly, even if money doesn’t change hands (e.g., gifting), it might still be a taxable event.
To calculate the gain, you use the difference between the acquisition cost and the disposal price. Read a more in-depth review on Capital Gains Tax here.
2- What Qualifies as a ‘Disposal’?
Disposal covers not only sales but also transfers to third parties. For instance, if you gift a property to someone who isn’t your spouse, civil partner, or a charity, it’s considered a disposal, and you might have to calculate the gain using the property’s market value at the time of transfer.
3- Inheriting Property
Inheriting a property usually falls under Inheritance Tax rules rather than CGT. However, if you decide to sell or transfer the inherited property later, it may then be subject to CGT.
3- Do You Need to Pay CGT When Selling Your House?
You typically don’t have to pay CGT on the sale of your main residence.
However, CGT may apply if:
▪ The property isn’t your main home.
▪ You have let out part of your main home (lodgers are usually an exception).
▪ Part of your home is used solely for business.
▪ The property’s grounds exceed 5,000 square metres.
4- How Much CGT Will You Pay on Property?
The CGT rate varies depending on your income tax bracket and the nature of the asset.
For property:
▪ Basic Rate Taxpayers: Pay 18% on residential property gains.
▪ Higher Rate Taxpayers: Pay 24% on property gains (from April 2024 onwards; previously, it was 28%).
5- Reporting Capital Gains
Assets That Are Not Residential Property:
▪ You can report gains through your Self Assessment tax return or use HMRC’s online Capital Gains Tax Service.
▪ Report by 31st December in the tax year following the disposal.
▪ Pay CGT by 31st January after the tax year of the gain.
Example: For a gain made in the 2023/24 tax year, report by 31st December 2024 and pay by 31st January 2025.
6- What If You Don’t Normally Submit Self Assessment?
You can still report chargeable gains using HMRC’s real-time online service. The deadlines remain the same.
Special Rules for Residential Property:
▪ You cannot use the real-time Capital Gains Tax Service or Self Assessment to report residential property gains.
▪ Report within 60 days of disposal.
▪ Failure to report within the 60-day window can result in penalties and interest on the amount due.
8- Information Needed for CGT Reporting
To correctly report a gain, you’ll need:
▪ Acquisition and Disposal Amounts: Use market value if the asset was transferred for free or below market value.
▪ Market Value Evidence: HMRC may challenge your valuation if they disagree.
▪ Dates: The dates of acquiring and disposing of the property.
▪ Costs: Include legal fees, valuation fees, agent’s fees, and improvement costs.
▪ Documentary Evidence: Keep all records to back up your figures in case of an HMRC inquiry.
9- Practical Tips for Minimising CGT on Property
1- Accurately Record All Costs: Deduct allowable expenses, such as legal and agent fees or costs of improvements, to reduce the gain.
2- Use Your Annual Allowance: The annual CGT-free allowance for the 2024/25 tax year is £3,000 for individuals. Only gains above this threshold are taxable.
3- Gifting to Spouse or Civil Partner: Transfers between spouses or civil partners are exempt from CGT.
4- Hold the Property: If you are not in a hurry to sell, holding on to the property can sometimes be more tax-efficient, especially if you expect other changes in tax rates or allowances.
Conclusion
Navigating CGT on property can be complex, but understanding the basics and knowing when you’re liable can save you from unexpected tax bills.
From determining your gain to understanding how to report it correctly, this guide covers the key points to help you manage your property-related capital gains efficiently.
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