Understanding the Capital Gains Tax Rate
As you are in the process of selling your home, the question, “What is a capital gains tax?” may come to mind. This article is designed to help you solve that question and understand how it works and what the capital gains tax rate is in the UK.
What is the Capital Gains Tax?
The Capital Gains Tax is a fee that the UK puts on selling a home that is not your primary home. If you own more than one home and sell the one you don’t reside in, you’ll pay Capital Gains tax. You may also have to pay it with your primary home if you lease part of your home or use it as a place for your business.
You should note that there is an amount you can earn without paying this tax – £12,300 – but it will be calculated with other income, such as capital gains from other assets. This could push you into a higher tax bracket, so bear that in mind.
How much will my Capital Gains Tax be, and when is it due?
While everyone has to pay Capital Gains on properties that aren’t their primary residence, how much you pay depends on where your tax bracket falls. For example, if you are a basic-rate taxpayer, you only pay 18%, whereas if you are in a higher tax bracket or an additional rate taxpayer, you pay 28%.
It’s important to note that this tax is only charged on the amount of profit you make, not the total value of the property. To figure this out, take the price you initially sold the property for and subtract that value from the amount you sold it for.
You can reduce this number by deducting the costs you spent while buying or selling the property. For instance, if you spent £200 to improve the kerb appeal before you sold the home, you could deduct that same amount.
Your tax payment must be remitted 60 days after you sell your property. To do this, you must submit a ‘residential property return’ as well as make a payment to the account.
What can or cannot be deducted from my Capital Gains Tax?
There are a number of things you can deduct from your Capital Gains tax. First, you can remove the fees from solicitors and estate agents as well as the previously mentioned amount you spent with Stamp Duty. You can also factor in costs to improve the house. You cannot, however, factor in the house’s upkeep costs. You also cannot deduct mortgage interest from these costs.
Do You Ever Have to Pay Capital Gains on your Primary Residence?
There are times when you are required to pay tax on your main home. Here is a list of common reasons you would have to pay capital tax on your main home
- If you develop part of your home into flats or additional residences.
- If you bought the house solely to renovate it and sell it
- If your garden is half a hectare (1.2 acres)
- If part of your home is exclusively used for business
- If you let parts of your home to multiple lodgers
- If you moved out of the property more than nine months ago.
Do You Have to Pay Capital Gains on Inherited Properties?
No Capital Gains Taxes are payable on the death of a person, but it is factored into their estate. Depending on the estate’s value, an Inheritance Tax may be placed on a property. If you live on the property, however, you may be able to avoid that tax entirely. If, on the other hand, you do not live on the property, you will pay taxes on it at that point.
There are ways to mitigate Capital Gains taxes, but it’s not always an easy process. Your best bet is to talk with a financial advisor before you sell your home or property to understand better the taxes you may have to pay after you’ve made the sale of the home. That way, there will be no surprises once the house has sold.
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