Understanding Personal Capital Gains Tax on Residential Property

If you own a second residential property, then you might need to pay personal Capital Gains Tax on any profit you make when you sell it. This could be a second home or a buy-to-let property while you might also need to pay tax if your home is used partly for business

What Tax Will I Pay?

In the UK, the Capital Gains Tax rates for property are higher than the rates for other assets. For basic-rate taxpayers, they will need to pay 18% when on any profit when they sell the property. For those who are higher-rate taxpayers then they will have to pay a rate of 28%. However, what you should be aware of is that capital gains are included when you have to calculate your tax status. Therefore, you could find that you cross into the higher tax bracket. Every taxpayer will have a Capital Gains Tax allowance that they can earn before they pay tax which is £12,000. If couples jointly own an asset then the allowance can be combined, giving them an allowance of £24,000.

How Much Will I Pay?

Capital Gains Tax is only applicable to any profit or gains that you make. The simple equation for this is to deduct the price you bought the property for from the price you sold it before. You can then deduct any expenses such as fees, stamp duty and other expenses, eventually giving you the profit.

It is also possible to offset any losses when it comes to selling other assets and these can be carried forward. So, if you make a loss of £40,000 in your property portfolio when selling a property, this will increase your tax-free gain when the time comes to sell another property.

All losses can be claimed through the self-assessment tax return. However, if you make a profit, you will need to pay tax on anything over £12,000. If you need help calculating your tax position then accountants Birmingham will be able to help you.

As Accountants in Birmingham, we have advised individuals, landlords and property investors about Capital Gains Tax. Call us if you need any advice related to your personal needs and circumstances. 

When Do I Need To Pay Capital Gains Tax?

As it currently stands, if you sell a property, you will not need to pay any tax until the 31st January after the tax year that the property was sold in. This will need to be submitted to HMRC as part of your self-assessment tax return. What this means is that if you sold a property in March 2020, then you won’t need to submit your tax until January 2021.

However, things are changing come April 2020. Any property that is sold after the 6th April in the UK, if taxable capital gains are made then the tax will need to be paid within 30 days of completion or disposal. This can be done through the submission of a Residential Property Return. You will then need to make a payment on account. This shorter window will mean that you have to be more aware of your taxes and manage them better which is why you might benefit from accountants Birmingham.