Capital Gains Tax

What is Capital Gains Tax?

With UK owned property Capital Gains Tax relates to the increased valued made when selling a property. It also applies when disposing of a property which includes gifting or transferring to someone else, swapping it for another asset or obtaining compensation (e.g. insurance payout).

The increase in value from when the asset was bought is known as the gain (or profit) which is the amount to be taxed. It is not the total amount the asset was sold at. For example, if the property was purchased for £400,000 and later sold for £500,000 there is a “gain” of £100,000. This “gain” is subject to the tax.

 

Are there any exemptions or relief?

If the property is your main home (or only home) and you have genuinely lived within this property for the duration of time that you have owned it, you can benefit from Private Residence Relief (PRR). This means that you will not be liable for the CGT.

There are situations when CGT may apply or there is some tax that needs to be paid. For example,

– Where your home or part of it has been used exclusively as business premises

– Converted part of the property in flats

– The property or part of it has been let

– The grounds and buildings are larger than 5,000 square metres in total

– The property was intentionally purchased for a gain (e.g. property development)

In the scenario that you have a second home or the asset is a buy-to-let investment usually the CGT will apply and there is no relief.

 

How much tax do I pay?

Where Capital Gains Tax is applicable the rate will vary depending on your income, the size of gain and if the gain has exceeded your annual allowance. Typically for residential property the tax rate on the gain may be 18% or 28% depending on your own individual circumstances.

The above information should be viewed for illustration purposes only. We would recommend advice is obtained from a suitably qualified independent tax advisor.

 

How Blackacre can assist

If you require a HM Revenue & Customs (HMRC) compliant valuation report for capital gains tax purposes, our RICS qualified registered valuers can assist. We will ensure the formal valuation is finished in accordance with Inland Revenue and the District Valuer’s requirements.