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Capital gains tax

You might have to pay capital gains tax if you have sold a property you own for more money than you bought it for.

Capital gains tax might be due if the property you have sold is not your main home, and if the profit you have made from it exceeds the threshold, but there are several instances where tax on capital gains is not due.

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What is capital gains tax?

Capital gains tax is a tax on the profit you make when selling or disposing of an asset. The tax only applies to the profit, i.e. the gains, not the amount you receive.

So for example, if you buy an asset, such as a property for £200,000, and then sell it for £220,000, your capital gains (the profit) would be £20,000. The £20,000 profit could be subject to a capital gains tax if all your capital gains for the year are over the yearly tax-free allowance and the property is not your main home.

Not all assets are subject to capital gains tax either (see ‘What do you pay capital gains tax on?’ below).

How much is capital gains tax?

The rate for capital gains tax will depend on your income and the type of asset you are selling or disposing of.

For the 2017-18 financial year, the capital gains tax rate on non-property assets is 10% for basic rate taxpayers, and 20% for higher and additional rate taxpayers.

The rate on additional residential property or buy to let investments is 18% for basic rate taxpayers, and 28% for higher and additional rate taxpayers.

You don’t pay capital gains tax on all the profit you make, because everyone is entitled to a tax free allowance. For 2017-18, the tax free allowance is £11,300.

The basic rate taxpayer threshold for 2017-18 is £33,500, so if you are a basic rate taxpayer but your capital gains push you over the limit you will be charged at the higher rate.

For example, if you are a higher and additional rate taxpayer, and you bought a second home for £200,000, and later sold it for £220,000, your capital gains would be £20,000. If this is your only capital gain for the year, then you would deduct this from your tax free allowance of £11,300, leaving you with a taxable profit of £8,700. This £8,700 would be taxed at a rate of 28%, meaning you would owe £2,436 leaving you with a total profit of £17,564.

HMRC will not request the money immediately, so you should have more than enough time to arrange for the money to be paid to them.

Generally, the amount you pay will still depend on what you have made capital gains from and what type of asset it is.

What do you pay capital gains tax on?

When you make a profit on assets that you have sold, then that is a capital gain, but not all capital gains are taxable.

Capital gains tax may apply to the following assets or possessions:

  • Personal items such as jewellery, paintings, antiques, and coins worth £6,000 or more
  • Property that isn’t your main home
  • Your main home, but only if you’ve let it out, used it for business or it’s very large (over an acre)
  • Shares that aren’t in an ISA (Individual Savings Account) or a PEP (Personal Equity Plan)
  • Business assets

If you sell off an asset you own with someone else, such as a property you jointly own with a partner, you may have to pay capital gains tax on your share of the gain.

Capital gains tax is only due when your total gains are above the annual limit.

Capital gains tax exemptions

There are many tax exemptions when it comes to capital gains, including on:

  • Gifts between husband and wife or registered civil partners
  • Gifts to charities
  • The sale of your main home
  • The sale or gifting of private cars
  • The sale of gifting of personal possessions, such as antiques and paintings worth no more than £6,000
  • Betting, pools and lottery wins
  • ISAs, pensions and other national savings products
  • Life insurance payouts, unless they are second hand
  • Anything you leave behind when you die (although inheritance tax may still apply)

However, what you owe in capital gains tax can be difficult to fully understand, so it is worth speaking to an accountant or financial advisor first.

Do I need to pay capital gains tax when I sell my home?

People don’t usually end up having to pay capital gains tax when they sell their home. Firstly, the property needs to be one that is not your main home, and the profits made need to go over your tax free allowance for the year.

Capital gains tax may be due on your main home when you sell it if it is a buy to let property, used as a business or is very large (roughly over an acre). However, you may get tax relief if the property is considered to be a business asset, or was occupied by a dependant relative.

If you have a second home that you are selling, then any profit you make from it could be subject to capital gains tax.

Buy to let and capital gains tax

If your home is being let, then it may be due capital gains tax if you decide to sell it. Capital gains tax applies to second properties, whether they are for let or not, but this rule applies even if the home is your main home and you let out a part of it. It also applies if your property is used to make a profit, such as being used to accommodate a business.

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