06, June, 2023

How to avoid Capital Gains Tax when selling a property

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When do I have to pay Capital Gains Tax?
You ony have to pay CGT if you’re selling the house for more than you bought it for.

With 18% for basic rate taxpayers and 28% for those on the higher rate, Capital Gains Tax can take a sizable amount of profit from the sale of your property. However, it doesn’t always have to be paid and can be avoided if you have owned the property for 5 years and have personally used it as your home for at least 2 of those years.

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What is a principal residence?

The principal residence is the home that you have physically used and occupied the most during the 5 years before the property is sold. By proving this, a single person can avoid tax on up to £250,000 worth of gain and a married couple that files jointly are exempt from £500,000.

However, this only applies if Capital Gains Tax is necessary. The tax is not applied to the entire amount a property is sold for, just any gains that are made. It is calculated using the difference between the amount you bought and sold the property for, and even then it is only paid on profits over £11,700.

For example, if a property is sold for £100,000 more than it was bought for, providing it wasn’t a principal residence, tax would only be paid on £88,300. Therefore, a basic rate taxpayer will pay £15,894 in Capital Gains Tax, while those on a higher rate will pay £24,724.

Are the tax rates all the same?

It is important to note that these figures are unique to residential properties and other assets may carry different rates. Alongside this, the tax-free figures can change with each financial year; the 2018/19 figure of £11,700 showed a £400 increase on 2017/18’s £11,300.

Typically, Capital Gains Tax is paid by those with property portfolios who look to buy, improve and sell houses to make a profit. So, if you’re looking to downsize your house or need a quick sale on your main house, it will more than likely be one less tax to worry about.

Do I have to pay Capital Gains Tax if I’m selling an inherited house?

If you’re selling an inherited property, you will only be eligible to pay Capital Gains Tax if you already own a property, making the inheritance your second. If this is the case, then you need to tell HMRC which property is your main residence. Once this has been done, the typical rules for Capital Gains Tax will apply, depending on whether you decide to sell your house or the second property.

Regardless of whether you’re due to pay Capital Gains Tax on the sale of a property, it still has to be declared through HMRC. Failure to do so could risk accusations of tax evasion.

Our Capital Gains tax calculator is a quick and easy way to find out if and how much you may have to pay when selling your property.

At We Buy Any House, we offer you a fair and competitive price for your property. So, whether, you’re trying to sell a second home quickly or you’ve decided to sell a property you’ve inherited, we can help guide you through the entire process. Get in touch today to find out more.

We buy any home in as little as 7 days, or timescales to suit you. Head to our website for more information.

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