You only have to pay Capital Gains Tax if you’re selling the house for more than you bought it for. With 18% for basic rate taxpayers and 28% for those on the higher rate, Capital Gains Tax can take a sizeable amount of profit from the sale of your property. However, it doesn’t always have to be paid and can even be fully avoided in some occasions. This blog will help you to understand the ins and outs of Capital Gains Tax and I hope that it can help you to save you money when selling your home.
It is important to understand that you only pay Capital Gains Tax on the difference between your purchase price and sale price. The tax is not applied to the entire amount a property is sold for, simply on the gains that are made. You take the difference between purchase and sale price and then only pay tax on profits above £11,700.
For example, say you purchased a property 3 years ago for £100,000 and then preceded to sell it for £200,000. You would only pay Capital Gains Tax on the value difference minus £11,700. Meaning you will be liable to pay the tax on £88,300 worth of profits. The exact amount you pay will depend on your personal tax rate. A basic rate taxpayer will be required to pay £15,894 (18% of £88,300). Whereas, a higher rate taxpayer will pay £24,724 (28% of £88,300).
As you can see, this is quite a substantial amount of money and can be a huge inconvenience to those homeowners who do not plan for this expense.
Can Capital Gains Tax Be Avoided?
Yes, and the most common way to avoid Capital Gains Tax is related to residency. If you have owned your property for 5 years and have personally used it as your home for at least 2 years, then you are likely to be able to avoid the associated fees. By providing evidence of primary residency, a single person can avoid tax on up to £250,000 and a married couple that files jointly are exempt from £500,000. If you would like more details on this procedure, please contact Olivia Rose Estates and one of our team will guide you through the process.
Are the tax rates all the same?
It is important to note that these figures are unique to residential properties and other assets may carry different rates. Alongside this, the tax-free figures can change with each financial year. For instance, the 2018/19 figure of £11,700 showed a £400 increase on 2017/18’s £11,300.
Do I have to pay Capital Gains Tax if I’m selling an inherited house?
If you’re selling an inherited property, you will only be eligible to pay Capital Gains Tax if you already own a separate property. If this is the case, then you need to tell HMRC which property is your main residence. Once this has been done, the typical rules for Capital Gains Tax will apply.
Regardless of whether you’re due to pay Capital Gains Tax on the sale of a property or not, it still has to be declared through HMRC. Failure to do so could risk accusations of tax evasion.
At Olivia Rose Estates, we offer you a fair and competitive price for your property. So, whether, you’re trying to sell a second home quickly or you’ve decided to sell a property you’ve inherited, we can help guide you through the entire process. Get in touch today to find out more.
