Capital gains tax should only 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.
Capital gains tax, or CGT, 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 difference between the price you paid and the one you receive.
If, for example, you buy a property for £200,000, and then sell it for £210,000, your capital gain (or profit) would be £10,000. This £10,000 profit could therefore be subject to a capital gains tax, but only if the property is not your main home, and your capital gains for the year exceed the annual tax-free allowance - £12,300 for the 2020/21 tax year.
The rate for capital gains tax will depend on your income and the type of assets you sell.
For the 2020/21 tax 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.
The basic rate taxpayer threshold for 2020/21 is £37,500, so if you are a basic rate taxpayer but your capital gains push you over this limit you will be charged at the higher rate.
Let’s say you are a higher rate taxpayer who buys an investment property for £200,000, then sells it for £220,000. Your capital gain on this transaction would be £20,000. If this is your only capital gain for the year, your profit after the tax-free allowance of £12,300 would therefore be £7,700, meaning you would have to pay CGT of £2,156 (at the 28% rate).
When you make a profit by selling assets such as property or a valuable painting, 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
Shares that aren't in an ISA (Individual Savings Account) or a PEP (Personal Equity Plan)
If you sell an asset you own with someone else, such as a property you jointly own with a partner, you may also have to pay capital gains tax on your share of the gain.
However, capital gains tax is only due when your total gains are above the annual limit (£12,300 for the 2020/21 tax year).
There are lots of capital gains tax exemptions. Gains on which you do not have to pay CGT include:
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 apply)
People don't usually end up having to pay capital gains tax when they sell their home. This is because your main residence is usually exempt from capital gains tax.
However, CGT may be due when you sell your main home if you have let it out or used it as a business premises. You may also have to pay capital gains tax on any profit you make from the sale if the size of the property (including grounds) is more than 5,000 square metres.
If you sell a second home or investment property, then any profit you make from it over and above the annual CGT allowance will usually be subject to capital gains tax.
Capital gains tax applies to second properties, whether you let them out or not. If your home – or part of it – is being let, then you may also have to pay capital gains tax on any profit from its sale. This is the case if part of the property is used solely for business, but not if you take in a lodger while you continue to live in your home.