Selling a property is an exciting prospect, but it is important to understand the tax implications involved in the process.
Let’s take a look at what taxes you have to pay when selling a property, how to calculate the amount you owe, and whether or not you could be exempt from paying tax when selling.
How does Capital Gains Tax apply when I’m selling a property?
If you make a significant profit when selling a property that is not your primary residence, you may have to pay Capital Gains Tax.
This tax is applicable to buy-to-let properties, business premises, land, and inherited property. If you do need to pay Capital Gains Tax, you must inform HMRC and pay within 60 days of the sale.
Related: Will I have to pay Capital Gains Tax when selling a property?
How do I calculate Capital Gains Tax?
Capital Gains Tax is based on the amount of profit you make on a property, which can be calculated by taking the sale price and subtracting the original price and any renovation costs. Once you have calculated your profit, you then need to subtract the tax allowance off to reveal the final amount that you will pay tax on.
You will pay 18% Capital Gains Tax on the profit from selling your property if you are a basic rate taxpayer. However, any amount above the baseline tax rate will be subject to 28% tax. If you’re a higher rate taxpayer, you’ll pay 28% on all your profits on the property.
Related: Capital Gains Tax on Buy-to-Let: What you need to know
Could I be exempt from paying Capital Gains Tax?
If all of the following are true, you do not have to pay Capital Gains Tax when you sell your property:
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You have occupied the property as your primary residence throughout the whole duration of you owning it
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You have not rented out any part of the property (excludes having a lodger)
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You have not used any part of your home exclusively for business purposes (excludes casual home ‘office’)
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The overall area of the grounds, including all buildings, is less than 5,000 square metres
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You did not purchase it for financial gain
If all of the above apply to you, you will automatically receive Private Residence Relief, meaning you will not have to pay any tax when selling your property. If some of the above are true, you may have to pay some tax.
Related: Three major property taxes all landlords need to be aware of
Do I have to pay Inheritance Tax when I’m selling a property?
If you have inherited a property from an individual, who isn’t a spouse or partner, who has passed away, you might have to pay Inheritance Tax on it, whether you decide to sell it or not. The Inheritance Tax rate is currently 40%, however, if the property is valued at £325,000 or less, you will not have to pay any tax.
If the property is worth over £325,000, you will only have to pay tax on the difference between its value and the threshold. This amount must be paid within six months of the individual passing away.
Will I need to pay Income Tax when selling my property?
When you sell your property, the proceeds are not considered income in the conventional sense and you will not be required to pay income tax.
However, if you decide to rent your property out instead of selling, you will be responsible for paying Income Tax on any profits you generate from rental income.
Will I need to pay Stamp Duty Land Tax when selling my property?
Stamp Duty Land Tax (SDLT) only has to be paid when you purchase a property. The type and value of the property determine how much you pay.
Your tax payment may be lowered if you buy and sell at the same time, as your SDLT can be subtracted from the taxable gain on the sale of your property.
Looking to sell your home? Contact your local Whitegates branch today
