Capital Gains Tax: An introduction to the basics
Capital Gains Tax (CGT) may be payable if you make a profit (‘gain’) when you sell (or ‘dispose of’) property that’s not your home, for example:
· buy-to-let properties
· business premises
· land
· inherited property
Where a gain arises on these types of assets these must be reported to HMRC, alongside the payment of tax within 30 days.
There are different rules if you sell your principal home, live abroad or a company registered abroad, sell a lease, sell a jointly owned property, or have a compulsory purchase order, or other types of assets (such as shares) which this article does not address.
To find out whether you need to pay tax you first must work out if you have ‘a gain’. Your gain is usually the difference between what you paid for your property and the amount you got when you sold (or ‘disposed of’) it.
If your combined capital gains are over your allowance for the year you’ll have to report and pay Capital Gains Tax.
You will need to know the date you bought your property and what you paid for it on initial acquisition. In the following situations you may need to use the market value when working out your gain.
· it was a gift (there are different rules if it was to your spouse, civil partner or a charity)
· you sold it for less than it was worth to help the buyer
· you inherited it (and do not know the Inheritance Tax Value
· You owned it since before April 1982
These circumstances will require support from a chartered surveyor with experience of handling such valuations as such valuations may be challenged by HMRC.
Once you have established the acquisition value of your property, you can then deduct costs of buying, selling or improving your property from your gain. These include:
· estate agents’ and solicitors’ fees
· costs of improvement works, for example for an extension (normal maintenance costs, such as decorating, do not count)
In addition, you may get tax relief if the property was:
· your home and private principal relief applies
· a business asset and you re-invest the proceeds of the sale into another qualifying business asset within 3 years of the sale
· occupied by a dependent relative
Once you know what your gain on the property is, you can calculate if you need to report and pay Capital Gains Tax, here.
You must report and pay Capital Gains Tax on most sales of UK property within 30 days. The rules are different if you need to report a loss, but this is important to do as you may be able to use such losses against future capital gains.
If you would like some help, support or a chat to sort out your CGT obligations or advice as part of your tax planning, please give Tammy Stuart Accountants a call.
