Selling a property? Then, you might need to think about Capital Gains Tax (CGT). But don’t worry, we’re here to simplify it!
What is Capital Gains Tax?
CGT is a tax on the profit you make when you sell a property that’s increased in value. However it’s only charged on the gain, not the total sale amount. So here’s an example; if you bought a property for £200,000 and sold it for £300,000, your gain is £100,000—that’s what the tax is based on.
When Does CGT Apply?
If you’re selling your main home, you’re likely exempt, thanks to Private Residence Relief. But if it’s a second home, buy-to-let property, or land, then CGT usually applies.
How Much Tax Will You Pay?
The tax rate you pay really depends on your income tax band:
Basic Rate: 18% on residence property gains
Higher Rate: 28% on residential property gains
Don’t forget your annual tax-free allowance- £6,000 for the 2023/24 tax year. You won’t pay CGT on the first £6,000 of your gain.
How to Reduce Your CGT Bill
So, if you’re looking for ways to reduce your CGT bill, then you might want to consider:
Using Your Allowance: Couples can combine allowances for more tax-free gain.
Timing the Sale: Sell in a tax year when your income is lower to stay within the basic rate band.
Lettings Relief: If you’ve rented out your former home, this might reduce your gain.
Offsetting Losses: Use losses from other investments to lower your taxable gain.
Reporting and Paying CGT
After selling, you’ve got 60 days to report and pay CGT to HMRC through their online service.
At Diamond Bookkeeping, we’re here to help. Reach out if you need advice or support with your property finances!
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