Capital Gains Tax – An Overview

Capital Gains Tax (or CGT) is taxation on the profits if you sell an asset that has grown in value. This definition can be confusing, so here’s an example of how it works.

If you bought a property for £400,000 and then sold it for £450,000, the profit you have made is £50,000. That means you would need to pay CGT on the £50,000 profit, not on the full sale price of £450,000.

Do All Property Sales Incur CGT?

Not every property sale is liable for Capital Gains Tax. If the property you’re selling is your primary residence, you’ll automatically have eligibility for Private Residence Relief so long as:

• You’ve lived in the property as your primary home throughout the entire period you’ve owned it.
• Part of it hasn’t been let out (this doesn’t include having lodgers).
• No part of the property has been used exclusively for business purposes.
• Its grounds are under 5000sqm.
• The property wasn’t purchased solely to make gains.

For these reasons, most sellers won’t be liable for CGT.

When Must CGT Be Paid When Selling A Property?

If you’re selling a second home, you’ll usually need to pay CGT.

You’ll also usually be liable for Capital Gains Tax if you’re selling a buy-to-let home.

If you inherit a property, you won’t need to pay any Capital Gains Tax until you decide to sell it, and if you’re gifting property to your civil partner, spouse, or a registered charity, no CGT is usually owed.

How Do I Calculate Capital Gains Tax?

To calculate the amount of CGT you owe, you need to subtract the price you paid for your property from its selling price to work out the profit. The government website has a handy online calculator that you can enter this figure into to determine the amount you need to pay, but there are some considerations to take into account first, since they could affect how much you owe overall:

• The Capital Gains Allowance.
• Your share of a jointly owned property.
• Allowed deductions such as estate agent and solicitors’ fees and home improvements.
• Tax relief.
• Special circumstances such as compulsory purchase.

Selling Your Home

If you’re ready to sell a property, whether it’s your primary residence, a buy-to-let property that you own, or a second home, get in touch with us. We can help you with all your selling needs.