Capital Gains Tax on the Disposal of Property
You may have to pay capital gains tax if you make a profit (gain) when you sell or dispose of an asset. The most common way for a person to dispose of an asset is by selling it to another person. However, you may also be liable to pay capital gains if you gift or exchange an asset.
Capital gains tax on the disposal of an asset can be complicated to calculate as there are several tax reliefs and exemptions to consider. In case of property sale, the applicable reliefs may be Principle Residence Relief (PPR), Letting Relief, Rollover Relief and Gift relief, etc., which can significantly reduce the capital gains tax payable or defer it to a future date. Therefore, you must correct your calculations to ensure maximum tax savings.
Selling your main home
If you are selling a property that is your home and you have always lived in that property as your main residence, you won’t be liable to make any tax payments if certain other conditions are satisfied.
However, if your property was used as the main residence for part of the ownership period and was vacant or let for the other part of the ownership period, you may be liable to pay capital gains tax. In such a situation, you will get relief for the period you lived in the property, called Principle Private Residence (PPR) Relief. If you have let the property for part of the ownership period, you may be eligible to get letting relief.
There are specials rules to calculate capital gains considering the following:
- Periods of actual occupation
- Period of deemed occupation as per HMRC rules
- Periods when the property was let
- Periods when the property was vacant
This requires a detailed analysis of the individual case to calculate the reliefs such as Principal Private Residence Relief (PPR) and letting relief. This will in many cases either significantly reduce your capital gains tax or even eliminate it completely.
Capital gains tax on the sale of buy to let property
Generally, you will pay capital gains tax on the sale of buy to let property if you have made any profits. No Private Residence or Letting Reliefs are available if the property was never your main residence. What tax rates are applicable to the gains depends on your other income.
Capital gains tax on the sale of property by non residents
Generally, individuals who are not residents in the UK do not pay capital gains tax on the disposal of their property. However, there are some rules changes; therefore, from 6 April 2015, non residents are chargeable to UK capital gains on the direct disposal of UK residential property under the NRCGT rules. For more details on this, please click on this link
Do I have to pay capital gain tax if I gift my property to my family member?
Gifting a property to a family member can be a way to reduce inheritance tax when you die. However, you may be liable to pay capital gains tax depending on to who you transfer the property and whether the property is your main residence.
You can give your property to your loved one, whether it is your spouse, a child or someone else. If you gift your property to your spouse, there is no capital gains tax payable. The disposal of the property is deemed to take place at ‘no gain/no loss’ provided that the couple is married or in a civil partnership and living together during the tax year.
This no gain/no loss rule applies only to transfers/disposal between spouses. It will not apply to children and other family members, which means if you transfer the property to any child, brother, sister or other close relatives, there will be capital gains tax payable. The transfer is deemed to take place at the property's market value.
How to calculate capital gain on the property?
Generally, the capital gains tax is payable on the difference between the property's sales price and purchase costs. However, you can also deduct the costs associated with the sales and purchase of the property plus any capital expenditures incurred.
Proceeds of sale of property XX
Less: purchase price of the property (XX)
Less: costs related to the disposal of the property (XX)
Less: costs related to the acquisition of the property (XX)
Less: capital expenditures incurred on the property (XX)
Gain on the disposal of the property XX
Less: Tax reliefs available (if any) (XX)
Principal Private Residence (PPR) Relief (XX)
Letting Relief (XX)
Taxable gain XX
Rates of capital gains tax
There are different capital gains tax rates depending on whether you sell a residential property or other assets and also in which income band you fall. The following are the income tax bands in the UK, and the rate of capital gains tax would depend on which income band your capital gains would fall in.
Basic rate £0 to £50,270
Higher rate £50,271 to £150,000
Additional rate over £150,000
|Taxpayer Income band||Gain on the sale of Residential Property||Gain on the sale of Other assets|
When do I have to pay capital gains tax?
The normal due date for capital gains tax payment is 31 January, following the end of the tax year in which the gain arose. However, there are a few exceptions, mainly for the gains made on the disposal of residential properties:
- If the taxpayer is a UK resident who directly disposes of a residential property, he will have 60 days from the date of the completion to file a capital gains tax UK property disposal return and pay any capital gains tax due.
- If the taxpayer is a non resident in the UK who disposes of residential property either directly or indirectly, he will have 60 days from the date of the completion to file a capital gains tax UK property disposal return and pay any capital gains tax due.
If you have recently sold your residential or business property and would like us to help you in relation this, please get in touch.