Have you recently sold a UK property; either a rental, holiday home, land or inherited property? Somewhere that wasn’t your principle private residence?
You may now have to pay Capital Gains Tax (CGT) if you made a profit (‘gain’) when you sold (or ‘disposed of’) said property. For UK property disposals made on or after 6 April 2020, you have thirty days after the property’s completion date to report and pay any CGT due on your gains.
Stuck where to start and how to report your Capital Gains Tax? Read on and let us help you with our complete guide to Capital Gains Tax on property and how to pay it.
What is Capital Gains Tax (CGT) on property?
Essentially CGT, is a UK tax on the growth in the value of your original property purchase investment. For example: if you buy a holiday let property for £40,000 and you sell it five years later for a price of £60,000, then the profit, or growth in value of £20,000 is taxable under CGT law.
CGT is applicable to any sale of property that is not your principle private residence. Theses might be:
- buy-to-let properties
- business premises
- land
- inherited property
There are different rules if you:
What is the current rate of Capital Gains Tax (CGT)?
As of June 2021, the rate of Capital Gains Tax is based on the following terms.
If you pay higher rate Income Tax
If you’re a higher or additional rate taxpayer you’ll pay CGT to the value of:
- 28% on your gains from residential property
- 20% on your gains from other chargeable assets
If you pay basic rate Income Tax
If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets (see below for examples).
How can I work out how much Capital Gains Tax (CGT) I owe?
Calculating your Capital Gains Tax (CGT) before you sell your property may be advantageous for budgeting tax bills. Whichever way you calculate (before or after), then here is how to work out how much you will owe.
If you pay basic rate Income Tax
If you are on a higher rate of Income Tax, then you would use the percentages above to work out how much you owe. For example: if you bought a property for £40,000 and you sold it five years later for a price of £60,000, then the profit, or growth in value of £20,000 is taxable.
Therefore 28% of £20,000 would be £5,600 if the property was residential.
If the property is regarded as another type of chargeable asset, then you would be required to pay 20% of £20,000, which is £4,000.
If you pay basic rate Income Tax
Now, let us imagine that you are not on a higher rate of tax. How would you work out how much Capital Gains Tax you need to pay? This will take a bit more working out;
Firstly, work out how much taxable income you have - this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.
Then, work out your total taxable gains.
Deduct your tax-free allowance from your total taxable gains.
Then, add this amount to your taxable income.
If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above the basic tax rate.
Here’s an example based on our previous purchase discussion;
Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £20,000 (£60,000 selling price - £40,000 purchase price). Your gains are not from residential property, so your Capital Gains Tax rate is 10%.
First, deduct the CGT free allowance from your taxable gain. For the 2020 to 2021 tax year the allowance is £12,300, which leaves £7,700 of the original £20,000 gain to pay tax on.
Add this to your taxable income. Because the combined amount of £27,700 is still less than £37,500 (the basic rate band for the 2020 to 2021 tax year), you pay Capital Gains Tax at 10%.
This means you’ll pay £770 in Capital Gains Tax (10% of £7,700).
If you are a Trustee or a business
Trustees or personal representatives of someone who’s died pay:
- 28% on residential property
- 20% on other chargeable assets
You’ll pay 10% if you’re a sole trader or partnership and your gains qualify for Business Asset Disposal Relief.
How to pay Capital Gains Tax (CGT) on your property
You’ll need to create a ‘Capital Gains Tax on UK property’ account before you can make any reports or payments. You can do this via the Government Gateway Portal.
If you are not already registered, sign up and make a note of your Government Gateway user ID and password.
Once you are registered you need to report and pay for the disposal of UK residential property or land made from 6 April 2020, within 30 days of the sale.
Get the following information ready:
- property address and postcode
- date you purchased, or inherited the property
- date you exchanged contracts when you were selling or disposing of the property
- date you stopped being the property’s owner (completion date)
- value of the property when you got it
- value of the property when you sold or disposed of it
- costs of buying, selling or making improvements to the property during your ownership
- details of any tax reliefs, allowances or exemptions you’re entitled to claim
- property type, if you’re a non-resident (for example holiday let, rental, etc)
To make your report, sign in with your Government Gateway user ID and password. Fill in the screen prompts with your information and check you entered everything correctly before submission.
If you are a Trust, and agent, or a capacitor or personal representative follow the details here
Once submitted you must make your payment within the 30 day period.
Need Valued to report it for you? If you need assistance please book a discovery call today!
What if I miss the 30 day deadline on Capital Gains Tax (CGT) reporting?
Late filing penalties may be charged to you by HMRC, together with interest on any unpaid tax, so it is vital that you report within the 30 day period if your property disposals fall on, or after 6 April 2020.
If you do miss that deadline, report as early as you can, so that any penalties are as small as possible.