Are you obliged to pay tax when you sell your house or other property?
At Go Fantastic, we know that selling a property comes with the need for thorough know-how. Below you will find out if any taxes apply to you, and if so, how to lower your tax bill.
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If the property you sell fast is in the UK, you may have to pay Capital Gains Tax (CGT) on the profits. When selling your main home, generally you don’t need to pay the tax, but for buy-to-let assets or second homes, that is the case.
On the other hand, if you do prep up for viewings of your second home or a rental property, you will most likely need to pay a CGT bill. Bear in mind that if parts of your home or property are used as a business workplace or leased, you will be faced with a capital gain tax.
A number of changes were set in motion in the 2019/2020 tax year, which we’ll explain below.
CGT on UK property
When selling shares, art, or cryptocurrency, you need to pay CGT. For property, you pay higher tax rates compared to other assets:
- Basic rate taxpayers are obligated to pay 18% on the profit from selling residential property, while higher and additional rate taxpayers pay 28%.
- Assets like shares come at a basic tax rate of 10%, and a higher rate of 20%.
- If you live in Scotland, income tax bands differ.
When working on your annual tax status, remember that any capital gains will be included and may move you to a higher tax section. There is an annual CGT allowance, which means taxpayers can earn a specific amount tax-free.
How Much Capital Gain Tax Will I Pay
As the name implies, CGT is only applied to the profit you make, not to the amount of the property sale. To figure out your gain tax, calculate the difference between how much you paid for the property and for how much you sold it.
Next, subtract any justifiable costs involved with buying and selling, such as broker fees and stamp duty. News on that is below. Losses can be offset even when you sell other assets.
In 2022 and 2023 one can benefit from tax-free capital gains of up to £12,300, just as in 2021 and 2022. And if you have taxable gains that exceed the fixed tax-free allowance of £12,300 in 2022 and 2023 (just as in 2021 and 2022), CGT rates are due.
For instance: if you make a £60,000 loss from selling a property, that will increase your tax-free gain when selling another, comments “buy my house” consultant Paul Gibbens.
Claim your losses by contacting HMRC or via a self-assessment tax return. Have in mind that you can do so up to 4 years after the tax year when you sold the asset.
Stamp Duty Changed on July 8th 2020
According to an official statement, Stamp Duty Land Tax also known as SDLT is temporarily reduced for all residential homes acquired in the period of 8th of July 2020 and 31st of March 2021. Upon purchase, properties valued below £500,000 now come with zero payable stamp duty, whereas the previous bar for first-time buyers was down at £300,000, and £125,000 for movers.
Starting April 2021, residents outside the UK willing to purchase a residential home in England & Northern Ireland are obligated with an extra 2% on top of stamp duty land tax. To sum it up, overseas buyers face a maximum rate that’s 17% unless you become a resident and are eligible for a refund
When is my CGT Due for Payment
If you made a property sale, you will have until the next self-assessment tax deadline to record the transfer and pay the tax owed. The deadline is 31 January following the end of the tax year in which the trade was made.
For example: if you sold your house on 20 June 2019, the deal occurred in the 2019-2020 tax year. You don’t need to announce the CGT you owe or pay your bill until you submit a self-assessment tax return on 31 January 2021.
Changes in payment window for capital gain tax
From 6 April 2020, taxable profit from selling property in the UK requires the CGT payment within 30 days from the day of the sale. To do so, submit a “residential property return” and make a payment on the account.
For real estate in the UK that you sold on or after the 27th of October 2021, tax is due within 60 days of completing the deal via a “residential property return” inquiry and payment. Back between the 6th of April 2020 and the 26th of October 21, one had 30 days to cover the tax
How Can You Reduce Your CGT Bill
As mentioned above, you can cut back some costs when buying and selling property. Besides the ones we listed earlier, you could also deduct costs associated with improving assets, such as paying for an extension of your property.
On the other hand, you cannot deduct costs associated with property maintenance as well as mortgage interest. However, the last one can reduce the tax you owe on rental income.
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