Capital Gains Guidelines for Selling your UK Properties

Capital Gain Tax

October 05, 2020

What is Capital Gains Tax?

It is the tax that you need to pay on the profits received from the sale of an asset. In this context, the profit is termed as gains. The gain is calculated by deducting the purchase price of the asset from the sale proceeds. The sale value is normally the sale price or the market value of the property. You can deduct the costs of any improvements made to the property, and also any legal fees, estate agents’ and solicitors’ fees, broker fees and other professional costs.

Assets on which Capital Gains Tax is charged

Normally, it includes all forms of property that includes buy-to-let properties, business premises, land, and inherited property. Normally, you do not have to pay tax on gifts if give to your spouse, civil partner or a charity.

Capital Gains Tax Rates

The Capital Gains Tax for residential property in the UK is 28%, which is higher than 20% for non-residential or other chargeable assets. However, the basic taxpayers pay 18% on capital gains from residential property and 10% on gains from selling non-residential property or any other chargeable assets.

To work out your tax status both your income and gains are considered.

Capital Gains Allowance

You get an annual CGT allowance that is the number of gains after which you start paying capital gains tax.

In 2020-21, you can have tax free gains up to £12,300 (or up to £12,000 in 2019-20). If you own assets jointly with your partner or spouse then this allowance can be £24,600.

How much CGT will you pay?

CGT is paid only on the Gains you made from selling your property.

To work out the taxable gains you need to deduct the purchase price of the property from the sale price.

Further, you can deduct the cost of improvements done to the property, and legal fees, estate agents’ and solicitors’ fees, broker fees and other professional costs.

In case you had suffered any capital loss on selling other assets that you can offset against your capital gains. And if you cannot utilise the losses then you can carry forward them.

To claim the losses you need to show it on your self-assessment or you can even call HMRC.


New Rules on CGT effective from 6th April 2020

Normally, if you sold a property in the tax year 2019-20 then you can pay the CGT on gains made via your self-assessment on or before 31st January 2021.

However, according to HMRC’s new guidelines, those who are buy-to-let landlords and second homeowners, if they sell the properties, which are not their listed principal home residence, the CGT on gains arising from such sales must be reported and paid within 30 days from the completion date of the sale.

Capital Gains Tax Reliefs when you sell your property

There are capital gains tax reliefs that can reduce your CGT, viz.

1. Private Residence Relief (PRR)

You do not have to pay Capital Gains Tax when you sell your home if you meet all of the following:

  • you have one home and you have lived in it as your main home for all the time you have the ownership.
  • you have not rented it out - except having a lodger
  • you have not used any part of it for business purpose only
  • the area of the ground in total is less than 5,000 square metres (just over an acre), including all buildings
  • When you bought it, your purpose was not just to make gains.

If you do not satisfy all these criteria then you may have to pay some Capital Gains Tax.

If you are married or into civil partnership then you can count only one property as your main home at any one time.

2. Letting Relief

If you lived in your home at the same time as your tenants, you may qualify for Letting Relief on gains you make when you sell the property.

If you are eligible then the letting relief for you will be the lowest of the following:

  • the same amount that is available for you as Private Residence Relief
  • £40,000
  • the same amount as the chargeable gains you made while letting out part of your home

Letting Relief is not available for any proportion of the chargeable gains that arise while your home is empty.

There are further provisions for gifted and inherited properties and different circumstances may affect the CGT that you need to pay. Therefore, you should take expert advice from your tax agent or advisor who can assess your gains in the most tax-efficient manner.