Our experts at DSR Tax Refunds know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
What would you have to pay tax on when you sell property?
There are several areas in property sales where you might find yourself liable to pay Capital Gains Tax. Whilst you are usually exempt from Capital Gains Tax when you are selling your main home, there are a number of types of property sales where you would be liable to pay Capital Gains Tax on any profits you make. Some of these are sales of:
To work out whether you need to pay any Capital Gains Tax, you need to work out your gain or profit from the sale.
The rules on Capital Gains Tax are different if you are selling your main home as well as sales of UK property if you live abroad.
When wouldn’t you have to pay?
There are a few circumstances which would mean you aren’t liable to pay any Capital Gains Tax. These are:
If you are giving the property as a gift to a husband, wife, civil partner or charity.
If the property was occupied by a dependent relative and you are eligible for Private Residence Relief.
You might also be eligible for tax relief if the property is classed as a business asset – our handy guides on Capital Gains Tax for business will tell you what you need to know.
How do you work out your gain?
To work out whether you will have to pay Capital Gains Tax, first you need to know whether you have made a profit, and if so how much – that is known as your ‘gain’ by HMRC.
HMRC usually consider this gain to be the difference between what you paid for the property and what you sell (or dispose of) it for.
However, there are some instances in which HMRC will expect you to use the market value of the property rather than the value you purchased it for. These instances are:
If it was a gift (the rules are different depending on whether the gift was to a spouse or civil partner or to a charity);
If you sold it for less than it was worth to help the buyer;
If you inherited it and you don’t know what the Inheritance Tax Value of it is;
If you owned it before April 1982.
If you don’t know what the market value is, you can ask HMRC to check your valuation but this can take a couple of months so don’t expect this to be a quick service.
What if you are selling under special circumstances?
If you are selling a lease, only selling part of your land, or if your property is subject to compulsory purchase, there are special rules that HMRC use to calculate your gain. These can take into account any compensation you might receive for compulsory purchase and allow for any gains to rolled over to take into account the purchase of a new property. Please see our detailed guide for more details.
If you are a non-resident of the UK, you will only have to pay tax on any gains you have made since 5th April 2015.
If the property is jointly owned, you need to work out the gain on your share of the property not the whole property.
Are there any costs you can deduct?
You can deduct the costs of buying, selling or improving your home from the gain (profit) you make. These costs can include:
Fees from estate agents or solicitors;
The costs of any improvement work, such as building an extension. Normal decorating costs are not allowable under this as HMRC would consider this to be a normal and temporary cost of property ownership rather than an actual improvement to the property. Improvements have to be seen to have added value to the property – a ‘like-for-like’ bathroom replacement, for example, wouldn’t be deductible.
Are there any tax reliefs that apply?
You might be able to claim tax relief if the property was classed as your main home, if it was a business asset or if it was occupied by a dependent relative and was eligible for Private Residence Relief.
What do you do when you have worked out your gain?
Once you have worked out the profit or gain you have made, then you work out whether you are liable to pay Capital Gains Tax. HMRC have an online calculator to help you work out how much you might need to pay but it can’t be used if:
You have sold business premises or land;
You have sold other chargeable assets during that tax year;
You have reduced your share of a property that you are still the joint owner of;
You can claim any other tax reliefs apart from Private Residence Relief or Lettings Relief;
You are a company, agent, personal representative or trustee.
If you need to report a loss, the rules are different.
We at DSR Tax Refunds know how complicated it can get when you are trying to calculate your capital gains liability. Sometimes expert advice is really needed and our friendly team are always on hand to help out so give us a call on 0330 122 9972.
What if you use the property for business?
You might be entitled to claim tax relief on any property you have used for business – these reliefs can help you reduce or delay the amount of Capital Gains Tax you have to pay.
However, if the actual business is involved in the buying and selling of property (for example, if you are a property developer) then you won’t pay Capital Gains Tax. You will pay Income Tax, if you are a sole trader or partner, or Corporation Tax, if you are a limited company, instead.
HMRC also have special rules for limited companies if they dispose of a single residential property that is worth more than £2 million.
What if you are selling overseas property?
You will still have to pay Capital Gains Tax if you sell or dispose of overseas property if you are a UK resident although there are different rules if you are classed as being domiciled outside of the UK (this means that your permanent home is outside of the UK but you are still classed as a UK resident).
You might also have to pay taxes in the country you have made the gain but if you are taxed twice, you might be able to claim some tax relief through the double-taxation agreements the UK has with many other countries. The details of each double-taxation agreement differ depending on which country it is with so the amount of tax relief you can claim will depend on that particular agreement.
If you are a non-resident of the UK but you return within 5 years of leaving the UK, you may be liable to pay Capital Gains Tax on your return.
How can DSR Tax Refunds help?
We know that working out your Capital Gains Tax liability on property sales can be a complicated affair, even with our helpful guide to tell you everything you might need to know. It’s all very well reading about it and knowing what HMRC’s stand on it is – but how do you apply that to your own circumstances? It can seem like an absolute minefield but help is always available and you don’t need to battle through this alone. Our team of experts at DSR Tax Refunds are always on hand to help our client and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
This page was last updated on 24/10/2018.