What is capital gains tax & when do you need to pay it?
Fail to pay results in penalties...
Firstly for those who don’t know what Capital Gains Tax is, it’s a tax on the profit when you sell something that’s increased in value. As the name suggests, tax is paid on the profit, not the sale price. So, if you sell a property for £450,000, and you previously paid £400,000, the taxable amount will be £50,000.
If you are selling your main home, you will automatically be eligible for Private Residence Relief providing:
- you have one home and you’ve lived in it as your main home for all the time you’ve owned it
- secondly you have not let part of it out - this does not include having a lodger
- thirdly you have not used a part of your home exclusively for business purposes - the grounds, including all buildings, are less than 5,000 square metres in total
- and lastly you did not buy it just to make a gain In most instances, selling a second home will result in capital gains tax being owed, along with a buy to let and in some cases an inherited property.
Once you have a figure for the gain, the easiest way to calculate how much capital gains tax you owe on your property sale is to use this gov.uk calculator.
Certain things, such as solicitor and estate agent fees can be deducted from your gain, as can certain home improvments. Decorating and regular maintenance work cannot be deducted, though.
Capital gains on UK property sales must be reported and paid within 60 days of the completion date. Failing to adhere to these timeframes may result in a penalty and interest on the owed amount being added to your tax bill.