What is Capital Gains Tax?
Capital gains tax (CGT) is the tax you pay on any profit (gain) made when selling an asset – including a property that is not your main home. The gain is the difference between the price paid for the property, and the amount it is later sold for.
If a property is disposed of in another way, for example passing on as a gift, transferring it to someone else, or exchanging for another asset, capital gains tax may still be due.
When do I have to pay Capital Gains Tax on a property?
Generally, CGT is not payable when selling a primary residence unless it has been used as a business premise, or if part of the property has been let out (this does not include having a lodger if you are also living at the property).
However, it will usually need to be paid when selling any additional properties such as holiday homes and buy to let properties – even if it’s the only property you own.
Capital Gains Tax Allowance
There is a yearly allowance of £12,300 for the current tax year 2022/2023 (If two people jointly own assets they can combine the allowance). It is important to note that the allowance cannot be saved for future use, meaning if not used it will be lost. Please also keep in mind that the allowance is due to decrease from April 2023 to £6,000 per individual.
Capital Gains Tax changes from April 2020
Since 6 April 2020 there have been changes to how capital gains tax is paid and a standalone return to HMRC must be made with a payment made on account of the tax due.
From 27 October 2021, it was confirmed that the payment must be made within 60 days of the completion of the sale. Failure to pay within 60 days will result in penalties and interest charges.
Filing and payment obligations
You will need to complete a CGT return online via the HMRC’s government gateway, and if you don’t already have an account, you will need to apply for one. As this can take up to 10 days it is important to make sure you have done this in advance of selling a second home.
If the total gains on your property sale are less than the tax-free allowance, you still need to report your gains in your tax return if both of the following apply:
- the total amount you sold the assets for was more than 4 times your allowance
- you are registered for Self-Assessment
Capital Gains Tax can be a complex area so please seek further advice if you are unsure about your current situation.
For further information see https://www.gov.uk/capital-gains-tax