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Tax Implications While Selling A House
There are a lot of taxes associated with property in the UK and at times it can be quite complicated to know which are they and what they imply. Mainly there are two property taxes – stamp duty land tax and capital gains tax, which are associated with the buying and selling of property in the UK.
However the tax treatment of selling your property depends on whether the house was bought to be resold or for rental income, that is, for long term investment.
Is Capital Gains Tax what you pay while selling your house? The answer is, it depends. If you are selling your only home which is your primary residence, there is no capital gains tax on it. If you are selling your home in which you are living, there is no Capital Gains Tax applied on it. Selling your residence comes under a tax relief called Private Residence Relief for which you are exempted from paying any tax for selling your home in which you have lived through the entire period of ownership. But there are a few factors which might limit the PRR.
- Giving out a part of your home or all of it to tenants
- If you use a part of your home for business purposes
- If the property exceeds 5000 square metres
- If you have bought the property for resale to incur profits
Are taxes applied on trading properties?
If you have bought a property for the purpose of resale, it is considered as a trading property. Hence, the profits you get on the sale are taxable as income, irrespective of the fact if the owner is a resident or non resident of the UK. The rates of taxes on trading property goes up to 45 percent.
What are the taxes applied on investment property?
If a property is acquired for the purpose of rental income, it is considered as an investment property. Hence, the profits gained while selling an investment property are taxed under the CGT. Capital Gains Tax is the tax on the profit you make on selling a home at a higher value than what you had purchased it at. The tax is applied only on the profit amount of the asset resale and not the total amount received for the property. The tax is applied even if the property is given away as a gift to someone, transferred or exchanged for another asset.
The CGT rate for individuals is 18 percent or 28 percent, depending on their income in the UK. However, an annual exemption is available for individuals. If the property is owned by a trust, the rate of CGT is 28 percent and their annual exemption is half of that of the individuals.
What if you won more than one home?
If you have more than one property, you have to nominate one of them as your main, tax-free home. The choice depends entirely on the owner to nominate whichever house as the tax-free residence. It doesn’t necessarily have to be the one in which you plan to live or stay most of the time. You can nominate the one you expect to make most profits when you sell it. But you should remember that within two years of buying your second home, you should nominate one as your tax-free property. For those who are in a civil partnership or married can only nominate one property as tax-free between them.
Are there any other tax considerations?
The new deadline for CGT return is 60 days from April 2020. If a UK resident is selling a house that is not his/her main residence will have to notify the HMRC within 60 calendar days of the gain on CGT return and pay the due CGT tax. Before 2020, the deadline to notify the HMRC was 31st January.
What are the taxes imposed on company owned property?
Company owned properties are subject to Corporation Tax at the current rate of 19 percent. They are taxed at the same rates on trading profits. Whether a property is trading or investment depends on the intention with which they were acquired. Some tax reliefs like rollover relief and indexation allowance are available on investment properties while Substantial Shareholding Exemption and Business Asset Disposal Relief are available for trading properties.
For guidance on property tax matters or assistance in submitting tax returns, get in touch with the CoreAdviz team who have significant experience in tax and accounting related areas.
