How much is Capital Gains Tax on Property

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It’s the difference between the amount that you paid for the property and the amount you sell it for. The difference is the gain.”

Going through the details of CGT a question arises, how much is Capital Gains Tax on property? Answering the question leads to queries discussed in this article.

To look into our own individual circumstances to keep ourselves protected in turbulent times, cash flow strategies are necessary. Which is being upheld by the UK government.

When Do I need to pay Capital Gains Tax?

According to the UK taxation law, you need to pay CGT when you are selling your property (not your main home). Your foundation in your home is what you paid for, as well as the closing costs and non-decorative investment you made on that land, like a new roof. You can also add sales costs like real estate agent to your foundation. Subtract that from the sale price and get the main profit. People usually get entangled with significant technicalities of the Capital Gains Tax. Legend Financials are here to lesser your burden by making you understand about the technicalities. CGT is applied on the following discussed properties.

Second Home 

CGT is imposed on the property other than your main residence. For example, someone bought a house for £120,000 ten years ago and sold it for £220,000. Their annual taxable income is £25,000.

They did not work in the field, but paid £1,000 in stamp tax as well as £2,000 in legal fees on their purchases. They will pay £4,000 to lawyers and real estate agents when they sell. Its main advantage is the increase in the value of the property or value £100,000.

After a reduction in the cost of buying and selling, this dropped to £93,000. They have no other advantage or disadvantage, so they can use the full £12,300 CGT annual allowance against the profit. The remaining £81,000 will be paid CGT.

They will pay an average of 18% CGT of £25,270 for this benefit. This is because the maximum limit is £50,270, but they have spent £25,000 annually on his annual salary. They will then pay a maximum of 28% (£ 55,730) of their total profits.

“CGT is imposed on the property other than your main residence.

Inherited Property

Parents and Grandparents gifting property to their children has become common. If inherited property is the main residence, Capital Gains Tax will be exempted.

If you don’t want to sell your property in order to avoid capital gains tax, after you die IHT will be implied (40% of your gained profit).

Example Amount
Value at date of death
£300,000
Sold on for
£305,000
Selling costs
£3000
Gain
£2000
CGT allowance
£12,300 for 2021-22
Example Amount
Value at gifted date
£250,000
Sold on
£300,000
Selling costs
£3000
Gains
£47000
CGT allowance
£12,300
Taxable gain
£34,700
Basic tax payer gain
18%
High tax payer gain
28%

Foreign Property

You pay Capital Gain Tax if you ‘dispose’ overseas property if you live in the UK. There are special rules if you live in the UK but your permanent home (‘domicile’) is abroad.

  • You will be required to pay taxes in the country from which you obtained the income.
  • If you are taxed twice, you can claim relief.

The resident must declare to the government that the foreign home will serve as the primary residence. Generally, homeowners should make this announcement within two years of purchasing foreign goods. The only way this would be a problem was if the UK resident decided to sell his foreign and UK property the same year. And, if you want to avoid CGT on your foreign property, just keep this mind.

  • UK does not need a CGT if the property is available to everyone as primary residence.
  • As long as UK residents declare a global home as their primary residence, it is possible to avoid taxes on foreign goods.

Buy-To-Let 

Buy-to-let is purchase of goods specifically to exclude, that is, to rent. CGT will be implied on the rented properties as given by the HMRC office. The rate at which you pay CGT following a buy-to-sell property depends on your taxable income. If you are a basic rate taxpayer with an income of £50,000 or less, the rate is 18%. High-rate taxpayers with an income of £50,001 or more pay 28%.

How Do I Calculate My Capital Gains Tax? 

You need to get your benefits to know if you need to pay capital gains tax. Your profit is usually the difference between what you paid for your property. In layman term get your total taxable benefit subtract your taxable allowance from your total taxable profit. Add this amount to your taxable income.

“In layman term get your total taxable benefit subtract your taxable allowance from your total taxable profit. Add this amount to your taxable income.

If this amount is in the basic income tax band you will pay 10% on your benefit (or 18% on residential property).

What are the Capital Gains Tax Rates? 

In the UK, you pay CGT higher rates on property than other assets. Primary-rate taxpayers pay 18% of the profits made when selling the property, while higher and extra-rate taxpayers pay 28%.

“Primary-rate taxpayers pay 18% of the profits made when selling the property, while higher and extra-rate taxpayers pay 28%.

Like other assets, the base rate of CGT is 10%, and the higher rate is 20%. Keep in mind that any capital gains will be included when working outside your tax position for the year and may push you into a higher bracket.

All taxpayers have an annual CGT allowance, which means they can make a certain amount tax-free. You can get up to £12,300 tax-free capital gains in 2021–22 – until 2020–21. Couples who jointly own property can add this allowance, perhaps, to a profit of £24,600. You do not have permission to move it, so if you do not use it, you will lose it.

How Do I Pay Capital Gains Tax?  

This year, HMRC changed the guidelines for filling CGT on property. If you need in processing your CGT for your property, Legend Financial has a team of experts who can help you. Send us a message or schedule a meeting with us today!

If you are a resident:

  • Report UK settlements or land disposal from 6 April 2020
  • Pay any taxes you have to pay for that discard
  • Check your previous return and change

If you are not a resident, you must use this service to report a sale or disposal from April 6, 2020:

  • UK residence or land
  • UK property or land that is not inhabited
  • Mixed use of UK property or land
  • Property rights acquire at least 75% of UK land value (indirect disposal)

When should I Pay CGT

Anyone earning taxable income paid for UK property in the 2021-22 tax year will have to pay tax within 30 days of the sale or disposal. You should do this by submitting a ‘return on residential property’ and paying by account. We were able to wait until you submit your tax return to report the sale to HMRC, but that has changed since the tax year 2020-21.

Capital Gains Tax 2021 changes  

In July 2020, the Chancellor asked the Office of Tax Simplification to carry out a review of Capital Gains Tax.

There are four main changes to Capital Gains Tax which came into force in April 2020. The aim is to raise additional tax from the sale of residential properties and to collect this money more quickly than before.

  • Letting relief will now only be available to landlords who are in shared residence with occupants.
  • Property-owners who formerly lived in a property but then rented it out are exempt from paying tax on gains.
  • CGT must be reported within 30 days of a property being sold.
  • The tax-free grant has augmented from 12000 to 12,300 pounds.

What can I deduct from Capital Gains Tax bill? 

In addition to the annual allowance, there are other deductions from your profits to determine the final taxable income.

For example, when buying or selling property, you often need to pay for things like

  1. Housing agency fees
  2. Attorney fees
  3. Stamp duty

You can deduct this amount from all your profits, and only pay income tax on the balance. You can also eliminate the cost of upgrading rather than profit. You do not reduce the cost of maintaining a home such as a housekeeper’s salary or by regular dress. Nor can you deduct the interest you pay on your mortgage on your bill. But, CGT will be applicable if you make an alteration between buying and selling properties, such as

  1. Adding an extension
  2. Remodeling a bedroom
  3. Installing double glazing

What records do I need to keep for CGT

If you are making a taxable deduction, you usually need to complete a Self-Assessment tax form, so you need to keep the relevant documents regarding the profit or claim for loss or other exemption. In fact, you need records that, if necessary, will help you to answer any HMRC questions.

Speaking of market value in the following guide, we mean that the value of your asset may be expected to be collected in the open market. You usually get the goods when you buy them, but you may also receive them as an inheritance, as a gift or otherwise.

  • You  need to keep a file on the following:
  • The original cost
  • Market value at other dates
  • Improvement costs
  • Confirming you own the asset
  • When you dispose of your asset

References:

Capital Gains Tax. (n.d.). Hogbens Dunphy, 7. Capital Gains Tax. (n.d.). Retrieved from Gov.uk: https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

Capital Gains Tax review – first report: Simplifying by design . (2020). Office of Tax Simplification, 135.

Tax Guides: Capital Gains Tax. (2021, April 20). Retrieved from Low Income Tax Reform Group: https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/capital-gains-tax

Tax when you sell property. (n.d.). Retrieved from Gov.uk: https://www.gov.uk/tax-sell-property/selling-overseas-property

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3 thoughts on “How much is Capital Gains Tax on Property”

  1. Darren Menzies

    Upon reading the article about Capital Gains Tax, i found it very informative, with a straight forward no jargon approach to questions which would arise from a person like myself, about what CGT is, and why people with the asset of a secondary home would have to pay it.
    Any sort of Tax which has to be paid other than income tax needs to be explained to the layperson, and these examples where very clear and understandable.
    All the examples of all the rates which have to be paid on CGT, example 18% for primary rate tax payers and 28% for higher rate tax payers where very informative clear and concise.
    A very good read.

    1. Hey Darren,

      Thank you for your comment, it’s really encouraging 🙂

      We always try to make it as simple as possible for someone with no tax background to be able to understand easily.

      Feel free to contact should you wish you discuss more in detail.

      Regards,
      Fahad

  2. Bushra Rasheed

    After reading this Article regarding Capital Gain Tax, I become much familier about CGT such as how and when we can pay CGT,Changes in 2021 and the most informative thing is “Capital Gain Tax Rates”which have to be paid on CGT.For Example for primary rate tax payer is 18% and for higher rate tax payers is 28%.
    Enjoyed reading above article really explained every thing in detail.

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