For anybody who is currently selling, or planning to sell al property, it is advantageous to be aware of the latest rules surrounding Capital Gains Tax or CGT.
Capital gains tax is the tax which is paid on the profits made from the disposal (sale), of any asset. Different rates can apply depending on your income level. For example, if you are a higher rate tax payer then your capital gains tax will be 28% of gains made on residential properties.
Properties which have increased in value may be subject to capital gains tax depending on the amount of profit gained. Those who are liable for CGT payments will need to register an account at GOV.UK and file a report. Late payment of taxes can result in interest accruing and penalties so it is important to ensure that any amounts due are paid correctly.
The good news is that primary residential properties are mostly exempt from paying capital gains tax by way of Private Residence Relief, though a few rules will apply.
- You have lived in the property it as your main home for the duration of ownership
- You only have one primary residence
- You have not rented out part of the home
- Part of the home has not been used exclusively for business purposes
- The total property area is less than 5,000 square metres
- The property was not bought purely to make a return on investment
If any of these rule apply then you may need to pay capital gains tax.
When to report CGT on the sale of a property
Once your property has been sold you will need to assess any capital gains tax due and pay any amounts owed.
Any gains will need to be reported to the government and will include information about the property or other assets that were disposed. This will include details about the purchase including original price and most recent sale amounts. You will also need to confirm the dates of purchase and sales transactions.
It will be important to include any and all details that may impact or lower your tax liability. This could include things such as the cost of selling the property or any tax relief entitlements.
Once the sale of your property is complete, you have 60 days to report any capital gains, this use to be 30 days but it has been extended recently and applies to any properties sold on or after April 6th 2020.
If you know the amount that you own the figures can be reported immediately but in all other cases the 60 day period will apply. For capital gains made on assets other than property there are different rules and reporting periods are more flexible.
On which type of properties does CGT apply
With the tax relief and allowances in place most residential homeowners are not subject to capital gains tax from the sale of their homes. But it will apply to other kinds of property, these include any property that is a business premises, a buy-to-let, inherited property, or land.
If the property is a business asset then tax relief may be available, and any homes that have been inherited and then sold will need to be assessed. Assets gained in this way are usually inherited at their probate value, then once sold will be subject to capital gains tax on the increase in value from inheriting the property and selling it.
In these circumstances, any property sold as part of an inherited estate will still be subject to the the 60 day reporting rule for capital gains tax purposes.
