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Capital Gains Tax on Property
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit when you sell (‘dispose of’) an asset that’s increased in value. Capital Gains Tax on Property is charged at different rates to other assets and for residential property.
The requirement to report taxable gains was set at 30 days from completion of sale, however this was increased to 60 days at the Autumn Budget 2021.
Disposals can also mean gifting a property or transferring it to someone else, other than a spouse or civil partner. In general you do not need to pay this on your own home.
Disposing of an asset is defined as:
giving it away as a gift, or transferring it to someone else
swapping it for something else
getting compensation for it - like an insurance pay out if it’s been lost or destroyed
Property that is liable for Capital Gains Tax typically include commercial property, residential buy to let property, the sale of second homes (property that is not your main home) or holiday homes. These types of property are known as ‘chargeable assets’. If you dispose of an asset you jointly own with someone else, you have to pay Capital Gains Tax on your share of the gain.
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Annual Tax free allowance.
Most UK taxpayers have a Capital Gains Annual Allowance. You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).
For the period 2022/23 the Capital Gains tax-free allowance is:
£6,150 for trusts
Married couples and civil partners who jointly own assets can each use their allowance, potentially allowing for tax-free gains of £24,600.
Capital gains tax on property.
The rate of capital gains tax on property is higher than you would pay on other assets.
Basic rate taxpayers: 18% (and then 28% for any gain that takes them above the basic rate band).
Higher rate and additional rate taxpayers: 28%.
60-day capital gains tax payment.
Failure to report and pay taxable gains to HMRC within 60 days of completion of a sale may lead to penalties and interest charges.
In addition taxable gains should be reported on your Self Assessment Tax Return for the year in which the sale occurred. The initial payment is recognised as a payment on account, and the subsequent Self Assessment Tax Return ensures the correct amount of tax has been paid in the tax year.
Capital Gains Tax on second homes.
Property that is not your main home, for example a second home or holiday home is typically liable for capital gains tax if sold. In certain circumstances you may be able to claim relief, for example if the property was once your main residence, however, this could also affect the tax liability of your current main residence.
How to calculate capital gains tax on property.
In order to report a capital gain you should calculate the tax liability:
Confirmation of the purchase price and sale price
The dates in which you purchased and disposed of the asset(s)
Any allowable costs, such as renovation works, stamp duty, legal and other professional fees associated with the sale and disposal.
Confirmation of any applicable tax reliefs you are eligible for
Reporting a capital gain on residential property to HMRC.
Your accountant can report the capital gain directly to HMRC online. The report will need to include a computation of your gains and losses along with your return.
You must report and pay using the Capital Gains Tax on UK property disposal service. You will be able to report multiple disposals with the same completion date on one return.
Help with Capital Gains Tax.
At Styles & Associates we can provide advice to help reduce your tax liability, and provide a free quote for your specific requirements.
We work with a wide range of clients across Hampshire, Surrey, London and the South Coast. From individuals, through to landlords, buy to let investors and larger investors and developers, Styles & Associates can offer services to make your investment tax efficient.
For further information, and to request a fee quote for our services, call: 01420 01420 541 554.
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