CAPITAL GAINS TAX ON PROPERTY IN THE UK: EVERYTHING YOU NEED TO KNOW

Capital Gains Tax on Property in the UK: Everything You Need to Know

Capital Gains Tax on Property in the UK: Everything You Need to Know

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When selling a property in the UK, you might be liable to pay Capital Gains Tax (CGT) on the profit you make. Whether you're an investor, landlord, or homeowner, understanding how CGT applies to property transactions is essential for effective financial planning. Here's a comprehensive guide to help you navigate the rules surrounding CGT capital gain tax on property in the UK.



What is Capital Gains Tax (CGT)?


Capital Gains Tax is a tax on the profit you make when you sell (or dispose of) an asset that has increased in value. It’s the gain (the difference between the purchase and sale price), not the total sale amount, that is taxed.

For property, CGT is relevant for second homes, buy-to-let properties, land, or other investments in real estate, but usually not your main residence due to the Private Residence Relief (PRR).



When Does CGT Apply to Property?


CGT is applicable when you:

  • Sell a property that isn’t your main residence.

  • Gift a property to someone other than your spouse or civil partner.

  • Transfer ownership of a property in some instances (e.g., through inheritance with specific conditions).

  • Exchange properties.





Exemptions from Capital Gains Tax



  1. Private Residence Relief (PRR):

    • If the property is your main home, you're likely exempt from CGT.

    • However, if you've rented it out or used it for business purposes, the exemption may not apply entirely.



  2. Annual Exempt Amount (AEA):

    • For the tax year 2024/25, individuals can make gains of up to £3,000 tax-free (reduced from £12,300 in 2023/24). Couples can combine their allowances to reduce taxable gains further.



  3. Transfers Between Spouses or Civil Partners:

    • Property transfers between spouses or civil partners are CGT-exempt.







How is CGT Calculated on Property?


The tax is calculated on the gain made from the sale. Here’s how to determine your liability:

  1. Calculate the Gain:
    Gain = Sale Price - (Purchase Price + Costs of Purchase/Sale + Improvement Costs)

    Costs may include legal fees, estate agent fees, and stamp duty.

  2. Apply Reliefs and Allowances:
    Deduct any applicable reliefs, such as PRR or the AEA.

  3. Determine the Tax Rate:

    • Basic Rate Taxpayers (income below £50,270): Pay 18% on gains from property.

    • Higher/Additional Rate Taxpayers (income above £50,270): Pay 28% on gains.







Reporting and Paying CGT on Property Sales


If you owe CGT, you must report and pay it within 60 days of completing the sale (known as the CGT payment window) using HMRC’s online service. Late payments can result in penalties and interest charges.



Tips to Minimise CGT Liability



  • Utilise Your Annual Exemption: Sell during a tax year when your income and gains are low to maximise your AEA.

  • Consider Joint Ownership: If the property is owned jointly, both parties can utilise their AEA.

  • Keep Records: Document all costs related to buying, selling, and improving the property to offset taxable gains.

  • Plan with a Financial Advisor: Explore options like holding the property in a company or using trusts to reduce your liability.





Final Thoughts


Capital Gains Tax on property can be complex, but understanding the rules can help you manage your liability and retain more of your profits. If you're selling an investment property or second home, it’s worth seeking professional advice to ensure compliance with HMRC regulations and optimise your tax position.

Need help with tax planning or reporting your CGT? Contact our expert team for tailored advice on all aspects of UK property tax.

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