With the housing market increasing more than ever, Capital Gains Tax (CGT) is rising with it. UK property prices have hit an all time high over the last year, with a record average of £283,753 in March 2002 according to Halifax. Rising house prices mean significant capital gains for buy-to-let individuals who sell their properties.
What is Capital Gains Tax?
Capital Gains Tax is tax paid on the profit you earn when you sell an asset that’s increased in value, such as a property. You pay tax on the gain of the asset, rather than the amount of money you receive.
You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance. A It is payable on property that is not your primary residence – such as buy-to-let or a second home and you can nominate which property is your primary residence, with married couples and civil partnerships only having one main residence between them.
Capital Gains Tax is charged at 18% for standard rate taxpayers and 28% for higher rate taxpayers and is paid on any profit earned on the property minus the CGT allowance.
The Capital Gains tax-free allowance is:
- £12,300
- £6,150 for trusts
To calculate gain, subtract the amount you originally bought the property for from the sale price.
How to Reduce Your Capital Gains Tax Bill
With house prices rising, this also means that CGT is rising too. There are a few ways in which you can reduce your tax bill.
Deduct Costs
You can deduct costs of buying and selling property, such as estate agent, legal fees and stamp duty paid when purchasing the rental home. You are not allowed to deduct costs associated with the maintenance of your home or interest paid on your mortgage.
Offset Your Losses
You can offset any losses you make when selling other assets, by including them on your tax return.
Delay Your Sale
If you have made other Capital Gains in the current tax year, consider pushing back your sale until the next tax year, to make use of your full allowance.
Utilise CGT Bands
Basic rate taxpayers pay lower CGT, so if you are a higher-rate taxpayer and your spouse isn’t, you can transfer part of the property into their name.
Nominate Your Property as Your Main Residence
As we mentioned previously, you can reduce or eliminate the CGT bill by nominating it as your main residence in advance.
If you are selling your property and need help with calculating Capital Gains Tax, contact our specialist team for help.