In the UK, if you plan to sell your house, you need to consider certain factors before you sell your house. You might be wondering do you pay tax when you sell your house UK. Due to the confusing Capital Gains Tax (CGT), Stamp Duty and tax allowances, the tax becomes confusing and you might end up paying more tax.
However, you can lower the tax or pay no tax by taking into account certain factors. In this blog, we will walk you through the tax relief on your primary residence and second residence and the tax exemptions on selling your home.
The taxes on your primary residence are not levied and if you use your primary residence as your business and buy-to-let, you might have to pay tax. So, let’s dive deep into this discussion!
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Tax on Primary Residence or Private Residence Relief
In the UK, you don’t have to pay tax on your primary residence. The primary residence is the first home where you have been living. Moreover, you have not rented out this property to someone or not living as a shared occupancy. Otherwise, you have to pay tax when selling your house.
Following are the circumstances where you have to pay no tax while selling your first home. It is also known as private residence relief.
- If you reside yourself in that house
- You have let out any part of the house.
- You are not using any part of your residence for commercial or business purposes
- The total area of the house including the grounds is less than the 5000 square meters
- You have not bought this house to gain a profit. For example, you have bought it to live yourself and not with the intention to sell it later at a higher value.
If any of the above cases happen, you have to pay a capital Gains Tax (CGT) when you sell your primary residence and you would not be able to get a Primary Residence Relief.
What is the Capital Gains Tax on Selling Your House in the UK?
CGT is levied when you make a ‘gain’ from a deal. For example, if you sold your house at a higher valuation compared to the purchase price, you have made a gain in this case. In other words, the difference between the sale price and the purchase price is known as the Capital Gain and you are liable to pay a tax on this gain only and not on the overall valuation of the sale.
This tax on the gain only is known as the CGT. Normally, the basic-rate taxpayer pays a CGT of 10% and a higher-rate taxpayer pays a CGT of 20%. In another case, when you sell your house, you pay a CGT of 18% as a basic-rate taxpayer and 28% as a higher-rate taxpayer.
When to Pay Capital Gain Tax on Selling Your House?
Usually, you have to CGT if you are selling your second home or partly-residence or partly commercial property within 60 days of selling your house as of 27 October 2021. Otherwise, you have to submit your CGT within 30 days of selling your house as of 6 April 2020 and 26 October 2021.
What is Capital Gains Allowance in the UK?
Capital Gains Tax allowance is £12 300 per person. So, if your CGT is more than the Capital Gains Allowance, you will pay a property CGT rate on it. If your gain is less than the tax-free allowance of £12 300, you won’t pay any CGT on your property sale.
How Can I Reduce My CGT?
You can reduce your CGT by understanding how the capital gains tax work and what strategies you can use to lower your tax bills. Following are the cases when you can cut back your tax bill on the sale of your home:
- You can reduce your capital gains tax by understanding the capital allowance. You and your owner can increase the capital allowance by sharing the property.
- Next, you can also lower the capital gains tax by sharing the ownership with your spouse or civil partner if one of you is a basic-rate taxpayer.
- If you have no capital allowance left in one tax year as you have consumed all of it this year, you can delay the selling of your home to the next year to enjoy the capital allowance.
- You can show the property as the main residence if you own multiple properties at one time, it will help you get Primary Residence Relief or a greater capital allowance.
- The owner of the property can also deduct certain costs from the capital gains while calculating the capital gains tax. For example, the agent’s fee, legal fee and other costs etc.
The Bottom Line
The bottom line is that a property owner is not supposed to pay tax on their primary residence unless the house is not partially or entirely let out and has been commercialised. On the other hand, the CGT is also not applicable if you have gifted your property to your spouse or civil partner or in charity.
Similarly, the non-UK residents have to pay no tax if they have lived in that house for at least 90 days. Otherwise, they are liable to pay tax on selling their residence. So, CGT applies to sell your second home and not your first home. You also pay a CGT on your buy-to-let property.
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Disclaimer: All the information provided in this article on Do you pay tax on selling your house in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.