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Capital Gains Tax when selling a home

Will you have to pay tax when selling a home or other property? The short answer is, it depends. Read on to find out if you’ll have to pay capital gains tax, and if this is the case, how you might be able to reduce your tax bill. We also look at changes the government may be making to the tax in 2021.

capital gains tax when selling a home

What is capital gains tax and when do I pay it?

Capital gains tax (CGT) is payable when you sell an asset that has increased in value since you bought it.

The rate varies based on a number of factors, such as your income and size of gain. For residential property it may be 18% or 28% of the gain (not the total sale price).

Usually, when you sell your main home (or only home) you don’t have to pay any CGT. However, in some circumstances you may have to pay some. For example:

  • The home includes a lot of land/additional buildings (5000 square metres or more)
  • You’ve sub-let part of it (but having one lodger doesn’t count)
  • Part of your home is exclusively business premises
  • You bought it just to make a gain (e.g. if you are a property developer)
  • You have another home that could be considered your main residence

Some of these points may be open to interpretation and dispute, so if you are in any doubt it is sensible to seek advice. An independent financial adviser can give you their unbiased view on whether your home will be exempt from CGT.

Find a local independent financial adviser through our partners at unbiased. Click the button below and complete a short form to be connected with local advisers 

independent financial advisor service

What is the capital gains tax allowance?

You only have to pay CGT on gains that exceed your annual allowance. The tax-free allowance is currently £12,300 per person in 2020-21 (or £12,000 in 2019-20). This means your property can increase by this amount before any CGT will be payable on the sale. Any amount above this will incur CGT property rates.

Do I pay capital gains tax on my second home?

Generally, yes. If HMRC decides that a property isn’t your main residence, you will have to pay CGT on any gain in its value above your CGT allowance.

Do I pay capital gains tax on buy-to-let property?

Generally, yes. If your buy-to-let property has risen in value by more than your CGT allowance by the time you sell it, you’ll have tax to pay.

Do I have to pay capital gains tax on inherited or gifted property?

If you give a property to your spouse or civil partner, or to a charity, there won’t be any CGT to pay.

If you inherit a property (and any inheritance tax due has been paid by the estate) then there won’t be any further tax to pay until you sell the property. The gain will be measured from the date at which you acquired the property.

If you sell a property that was occupied by a dependent relative, then you may not have to pay CGT. Ask your adviser about this.

How do I calculate my capital gains tax bill?

Working out exactly how much CGT you have to pay means doing a few sums.

If you’re a higher-rate taxpayer, it’s quite simple. Just subtract your CGT allowance from your gain, and your bill will be 28% of the remainder.

If you’re a basic-rate taxpayer, it’s a bit trickier. You’ll need to work out if your gain-minus-allowance will lift your income into the higher-rate band. Everything above the band will be taxed at 28%, while everything below it will be taxed at 20%. Your adviser can help you calculate it accurately.

N.B. These figures are based on selling a residential property. Other assets may be calculated differently.

When do I have to pay my capital gains tax bill?

If you have capital gains in a particular tax year, you should apply to submit a tax return if you don’t do so already.

For property sold in the 2019-20 tax year, you’ll have until the next self-assessment tax deadline on 31 January 2021 to declare any profit made from the sale and pay the tax owed.

Since 6 April 2020 there have been changes to how customers declare and pay Capital Gains Tax. There is an online service to inform HMRC and pay the tax.

If you make a taxable capital gain from UK residential property, either as a landlord or second home owner,  in the 2020-21 tax year, you will have to pay the tax owed within 30 days of the completion of the sale or disposal.

How can I reduce my capital gains tax bill?

There are various ways you can minimise or even eliminate a capital gains tax bill.

1. Don’t forget your spouse’s allowance

Remember that everyone has a CGT allowance, so if you are the sole owner of a property, you can double your allowance by sharing ownership with your spouse.

2. Note the different CGT bands

Basic rate taxpayers pay lower CGT, so if you are higher-rated and your spouse isn’t, you could reduce your CGT bill by transferring all or part of the property into their name. Ask your adviser about the most efficient way to do this, to make best use of both your allowances.

3. Time your sale carefully

If you have used up some or all of your CGT allowance for a particular year, consider delaying the sale of your property to the next tax year.

4. Nominate the property as your main residence

If you own several properties and wish to sell one, you may be able to reduce or eliminate the CGT bill by nominating it as your main residence in advance. The rules on doing this are fairly strict, so talk to your adviser about how to do this properly.

5. Deduct certain buying and selling costs

It is possible to deduct some costs when working out your CGT bill including legal and estate agents’ fees, and stamp duty incurred when buying the property. Costs involved with improving assets, such as paying for an extension, can also be taken into account when working out your taxable gain.  However, you’re not allowed to deduct costs involved with the upkeep of the property.

Possible changes to Capital Gains Tax in 2021

The Office for Budget Responsibility forecast that in 2019/20 CGT would raise around £9.1bn, which is about 1.1% of all tax paid in the UK. So as the economy struggles amid the global coronavirus pandemic, it’s no wonder the Chancellor asked the Office of Tax Simplification (OTS) to review the tax as a means to raise government funds.

The OTS issued some recommendations in November 2020. For second homeowners and buy to let landlords, it’s worth noting that their 11 recommendations included:

  • Aligning CGT rates to income tax rates. That means basic-rate taxpayers who pay 18% CGT on property, and higher-rate taxpayers who pay 28% on property, will be charged 20% and 40% respectively.
  • Reducing CGT tax-free allowance. The OTS think the allowance is distorting people’s behaviour. It therefore suggests the annual exempt amount of £12,300, should be reduced to between £2,000 and £4,000.

A second OTS report looking at technical and administrative issues is expected in 2021. The Chancellor avoided changes to capital gains in the March 2021 Budget.

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Leave a comment (36)* Required

  1. David MillsDavid Mills

    Can one find out what building costs psf/psm were in 1987?

  2. ChloeChloe

    I now solely own my property. It was previously jointly owned (50:50) and I bought that person out.
    If I were to sell my property, would the purchase price for CGT be from the original purchase with the joint owner or the valuation when I later bought out the shares?

  3. Raj jeevarathinamRaj jeevarathinam

    If i sell my buy to let house and Buy another house immediately with what I gained, do I need to pay capital gains tax?

  4. AbiAbi

    If we sell a second house we have but immediately buy another, do you pay capital gains tax?

  5. Allen ShawAllen Shaw

    I am selling a buy to let property that is not my house of residence so I am aware that I will pay CGT. I then intend to buy a new buy to let property which I consider a better business prospect. Will I be penalised for this and have to pay CGT tax immediatly on the purchase of the new buy to let Thank you

  6. Sandy PennySandy Penny

    British citizen, pays UK taxes inheritated her mothers house in italy. Mother domiciled in Italy and Italian citizen, Value 220,000, at the time of transfer, retained it for a few years, market poor, sold for 150,000 last week.

    No gain, so no tax payable ???

  7. Maryanne WebbMaryanne Webb

    We are looking to move from our new build home (2015 build) to a brand new build out of area. We will have to rent for 6 months until the house is complete. it is our only home. Will we need to pay CGT as we will be keeping the gains for 6 months before getting another mortgage and using it for the deposit?

  8. trefor wattstrefor watts

    is there a document that details the annual allowances over the last few years
    I am correct in assuming that when the property is sold I need to look at the difference in purchase prices and price sold and then subtract the annual allowance for each year i owned the property

  9. Yvonne WallisYvonne Wallis

    We are selling our 2nd home,
    Please advise, we would like to gift the money from the sale to our daughter, how does that effect the capital gains we have to pay.
    Look forward to your advice.

  10. SteveSteve

    Hello
    I purchased my house in 2006 244000 ..rented it for 4 year until now and now sold. Paid tax on rental. My only home. Now buying a smaller flat. Sold for 475000..spent 105000 renovating over the years….will I have to pay CG
    Thx steve

  11. Annette JewellAnnette Jewell

    My parents bought a house out right years ago and placed in my name. They have rented it out ever since. Now it is up for sale and I also own my own property and have a mortgage on my home. Do I have to pay a tax on the house my parents are selling as the deeds are in my name?

  12. Steve StoneSteve Stone

    Similarly to Dr Gibbons (01/02/2021), my home is up for sale, I have a buyer but have not exchanged or completed. I am in the process of buying my new home, which is vacant, again I have not exchanged and completed. I am considering buying the new home and at least partially moving in, prior to completing on my current home. I understand I am likely to pay Stamp Duty on the new home – which I can reclaim providing I sell my original home shortly afterwards. What is not clear is what the capital gains tax position is. If I do things this way around will I be liable for CGT?

  13. Dr Gregory GibbonsDr Gregory Gibbons

    My wife and I currently have a main residence, and wish to buy another home, but to do this prior to selling our main home. We have our main residence on the market but don’t expect to sell before we buy the 2nd home. Will be liable for GDT on our existing home? Is the GDT refundable if we sell our old house within a certin period?

  14. jayne ashjayne ash

    I own my own house and my partner rents his property. We live in my house but we have separate mortgages in our respective names. Will we be worse off with regards to capital gains tax if we sell the rented property for our Pension after or prior to us getting married.

  15. Marie LawsonMarie Lawson

    My husband and his brother, were gifted their dads bungalow, years ago and he has now passed away, it is up for sale, if one brother sells his main residence and buys out the other and lives in the bungalow as his main residence, will he avoid capital gains tax….also how long do you have to live there before you can sell it.

  16. Megan GreenMegan Green

    My partner and I are separating after a 30 year relationship – we have been cohabiting for 25 years and I have been on all the mortgages apart from the one we are selling – we e lived there 9 years and brought our son up there. I have had to move out due to him having an affair with my friend and neighbour . Where do I stand regarding my financial position in the gain of the house?

  17. Sam MarshallSam Marshall

    Hello,
    I inherited a property and had it on air bnb. I have done 2 years of self assessment and this will be my last one as I sold the property October 2019. I did not own any other property at the time and have no idea how much the value of the property was when I inherited it. Do I still need to fill in the capital gains page on my return or should I just leave it?

  18. RichardRichard

    I would be grateful for your advice when you have owned a second home/holiday flat in the UK for ten years which is in the husbands name only.

    If you decide to now put the wife’s name also on the Deeds as a joint owner this presumably would give you additional relief from Capital Gains Tax, in the event of a disposal, by using the personal allowance for both parties.

    Could you advise whether in the event of a sale you would get the benefit of the full capital gains tax personal allowance or just a proportion for the length of time the wife’s name was added i.e. on a pro rata basis ?

  19. Christine RamsdaleChristine Ramsdale

    I own and live in one property. My only child also lives here and has never owned a property. Would CGT be owed when inheriting the property? Only my name is on the land registry.
    Thanks.

  20. Paul woodPaul wood

    Hi I live in the property for a number of year met my further wife and changed the mortgage to a buy to let with her on the new mortgage. I have now sold the property. When working out capital gains do I do it from the time of first buying or the remortgage?

  21. Jon HyeJon Hye

    I have sold my primary dwelling house. I understand there is no CGT to pay, but do I need to report it on a tax return within 30 days like you would if it was a second home?
    Thanks, Jon

  22. Tony BellTony Bell

    I have just sold my main residence, and am moving to my cottage, (never rented) and will be informing the world, that it is my main residence. For how long, must I live their until I can sell it free of CGT ?? I own no other properties.
    Thank you. Tony Bell

  23. Mahmuda MirzaMahmuda Mirza

    Hi
    I am in the process of selling my buy to let house.
    I am now retired. I will make around 150k profit.
    Will I have to pay tax if so how much ??
    Kindly let me know ASAP.
    Regards
    Mahmuda Mirza

  24. AshAsh

    Hi, just wondering, I buy a home lets say for argument sake worth £250000. I cut part of its garden off to sell as land for £100,000. this is my only main residence.
    So 2 options after getting planning permission.
    either sell the property with planning but put the property price up to lets say £330,000
    or sell the land ,if i sell the land i realise i will have to pay 18% CGT, so if i am on £20,000 per year PAYE will i need to pay anything extra.
    Would I be better off selling the property with planning permission from a tax point of view,hope ive explained this well enough.

  25. YatendraYatendra

    I sold property. Got advance payment in one financial year and signed the agreement. Final payment came in second financial year. Do I consider capital gain tax in two financial years on the amount got in each financial year.?

  26. Tony ParriniTony Parrini

    How is the value of a self-built sole property assessed if it is then sold less than 12 months after its occupation? Is there a CG to pay?

  27. jacqueline Russelljacqueline Russell

    If I move into an inherited home will I have to pay CGT on my exisiting home when I sell it?

  28. C sweeneyC sweeney

    hi

    I’m not due to pay CGT do I still need to complete a self assessment. I’m under the threshold.

    thank you

  29. JonJon

    Hi,

    I am selling our only property but have rented it out in the past. I believe I am still due to pay tax on the profit?

    My wife isn’t on the deeds so I could put her on but concerned the tax man will see this as tax evasion, given we should exchange very soon.

    Ive work from home 2 days a week for years. Is there any allowance for a home office for a PAYE employee?

    Any advice please?
    Jon

  30. Patrick TomesPatrick Tomes

    I own only one home but am living elsewhere and it is rented out. If I sell it, will I be liable for CGT?

    • If your rental property has risen in value by more than your CGT allowance by the time you sell it, you’ll have to pay CGT. You should speak to a financial advisor about this to see if there is any way of reducing your potential tax liability – you can find a financial advisor by using the link in our guide above.

  31. MickMick

    My father has gifted his house to me as he now is in care I will be putting the house up for sale this year hopefully selling for around 80k will I have to pay CGT if so how much?

  32. Andrew LipscombeAndrew Lipscombe

    I have a BTL/2nd home that I purchased in 2011. I never really planned for it to be a BTL when I bought a house in 2013 but I suppose I have enjoyed some perks from it in that time.

    I am now looking to sell. It is held in my name and would therefore trigger the 28% banding of tax. However my wife does not work, could I transfer this to my wife’s name before selling to trigger the lower rate of 20%?

    The taxable amount seems pretty clear, and should imagine just one of those things you need to pay….

  33. Mike KilraineMike Kilraine

    I am considering selling my second home which will be at a profit but reinvesting in a another home do i pay capital gains at this point or wait until I actual make a gain?

    thanks

  34. MartinMartin

    Trying to judge whether to sell my btl flat this tax year or the next tax year and to how the changes could affect the costs, so if I sold next year after April will it cost me a lot more money?
    Purchased in 2004 163.500, became an accidental landlord. Worth currently 295.00-300.00

  35. Michael CousensMichael Cousens

    I bought a house in 1983 and lived there full time until 2015. My wife continued to live there until it was sold in May this year. Am I liable to pay any CGT and if so how is it calculated? Michael Cousens

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