Capital Gains Tax (CGT)

1. Selling a property you’ve made money on? Great! Unfortunately, the taxman wants his share. CGT is levied on all chargeable gains on property transactions.
2. Annual Allowance. Everyone is allowed an annual tax-free allowance. This was £12,300 in 2020 but is reduced to £6000 this year and £3000 the year after. Blame Kwasi Kwarteng or Liz Truss (remember them??) but this is a huge stealth tax grab.
3. Chargeable Gain. The basis of the gain is simply what you sell for less what you paid. The difference is the gain. You can deduct certain expenses such as your original stamp duty, and the costs associated with the sale (estate agents and solicitors)
4. Added an Orangery to your terraced house in Rhyl? Extension on the cottage in Conwy? Excellent. Let’s hope you’ve kept the paperwork as most of the cost will be a “Capital Improvement” and will reduce your chargeable gain.
5. Principal Private Residence Relief (PPR). This relief exists where a property is your main residence and means you won’t pay any CGT if you sell and move. It’s also available if you USED to live in the property. The PRR element will be added on a pro rata basis based on the time you lived there.  PRR can also be used very effectively between couples that own a main residence and a holiday home. Careful planning required here though.
6. Tax Rates. CGT on residential property is charged at an eye watering 18%/28%. This is higher than rates on other assets. The rate you pay depends on your other income in the tax year. Income tax, property income and CGT all interact, so the calculations can get complicated.
7. As your total income for the year will not be known when you sell the property, the CGT can only be an estimate and any payment is effectively a ‘payment on account’ with the final balance calculated through your self-assessment.
8. CGT needs to be reported and paid 60 days from the completion of the sale. The Land Registry and HMRC are linked and share real time data. Penalties for non-compliance are severe.

CGT can be a complex area and the strict reporting and payment deadlines bring more stress at what can already be a challenging time. We offer a very reasonable fixed price service for calculation and submission of CGT liabilities. If you are thinking of selling, contact us for a free, no obligation chat. There are things to think about before you sell which could save you thousands.