How much Capital Gains Tax will I pay?
Capital Gains Tax is a tax on the profit (‘gain’) made, when you sell an asset that has increased in value. It’s only the profit (‘gain’) that is taxed, not the full amount.
Capital Gains Tax (CGT) is one of the least common taxes on income, and for many it won’t apply. However if you sell or give away an asset worth more than £6,000, you could have to pay CGT. It doesn’t apply for main homes, cars or lottery/pools winnings, among other things.
Each year individuals have an annual exempt amount that allows them to received some gains tax free, above this you pay CGT on all gains.
In 2023-24 you can make tax-free capital gains of up to £6,000 (this is down from £12,300 in 2022-23 and is due to be cut further in 2024-25 to just £3,000 tax-free)
Couples who jointly own assets can combine this allowance, so potentially allowing a gain of £12,000 without paying tax.
You can’t carry over any unused CGT allowance into the next tax year.
CGT AND PROPERTY
If you sell a property in the UK, you might need to pay CGT on the profits you make. You generally won’t need to pay the tax when selling your main home.However you will usually face a CGT bill when selling a buy-to-let property or second home. You may also need to pay CGT if your home is party used as a business premises, or if you lease out part of your property.
How to Work out your Gain
Your gain is usually the difference between what you paid for your property and the amount you got when you sold it. You can deduct costs of buying, selling or improving your property from your gain including estate agents and solicitors fees and improvement works (normal maintenance costs do not count).
CGT RATES ON PROPERTY
In the UK, you pay higher rates of CGT on property, than other assets. Basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.
With other assets such as shares, the basic-rate of CGT is 10% and the higher rate is 20%.
You will need to bear in mind that any capital gains will be added to your other income sources when working out which income tax bracket you’ll fall into for the year. Therefore it might push you into a higher bracket.
There are certain instances where you would not need to pay Capital Gains Tax on a property sale, however if you do need to pay it, then for UK properties sold on or after 27th October 2021 you must pay the tax owed within 60 days of the completion of the sale.
There are special rules for calculating your gain if you live overseas, you sell a lease or part of your land, your property is compulsorily purchased or you are selling property from the estate of someone who has died.
EXAMPLE OF CGT WHEN SELLING A SECOND HOME
Someone is selling a second home in England in 2023-24 for £220,000, after buying it 10yrs ago for £120,000.
Their capital gain is the increase in the property value, in this case £100,000.
They spent £5,000 on solicitor fees and estate agent fees from the sale of the property, which reduces the gain to £95,000.
They have no other gains or losses, so they can use their £6,000 CGT allowance – reducing the taxable gain to £89,000.
The rate of CGT depends on their other income, in this case let’s say it’s £25,000.
This means they’d pay 18% basic-rate CGT on £25,270 of their gain (taking them up to the threshold of £50,270) coming in at £4,548.60. And they’d have to pay the higher rate of 28% on the remaining £63,730, which is £17,844.40. Altogether the CGT payment would be £22.393.
CGT ON INHERITED PROPERTY
Your parents or relatives may want to leave you their home in their will. When they pass away, you’ll inherit the property at its market value at the time of death. There is no CGT payable on the death, but the value of the home will be included in the person’s estate. An estate is defined as being the total of someone’s assets and property, minus any debts and funeral expenses.
If you sell the property without having made it your own home, there could be CGT to pay.
The tax you pay will be based on the property’s value when you sell it, compared with its value on the date of death. If the value has increased, you’ll have made a taxable gain. As with any other property gains, you’re able to deduct any associated selling costs.
If you’re given the home while the owner is still alive and living in it, this is called a ‘gift with reservation’. Essentially this means the value of the property will still be included n the inheritance tax calculations when the gift giver passes away.
However, it may change things in terms of CGT. If you sell the property. The CGT you owe will be based on the increase in value between the date you were given the property, not the date of their death, and the date you sell it.
This first example explains what would happen if the property was gifted on death:
Example 1 Amount
Property value at date of death £200,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £200,000 minus £3,000 = £2,000
CGT allowance £6,000 for 2023-24, so no CGT is due.
Taxable gain None
This second example explains what would happen if you were given the property 10yrs before the owner’s death, but if the owner continued to live there until their death.
Example 2 Amount
Property value at date gift was made £140,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £140,000 minus £3,000 = £62,000
CGT allowance £6,000 for 2023-24
Taxable gain £62,000 minus £6,000 = £56,000
If you sell a property in the UK, you might need to pay CGT on the profits you make. You generally won’t need to pay the tax when selling your main home.However you will usually face a CGT bill when selling a buy-to-let property or second home. You may also need to pay CGT if your home is party used as a business premises, or if you lease out part of your property.
Your gain is usually the difference between what you paid for your property and the amount you got when you sold it. You can deduct costs of buying, selling or improving your property from your gain including estate agents and solicitors fees and improvement works (normal maintenance costs do not count).
CGT RATES ON PROPERTY
In the UK, you pay higher rates of CGT on property, than other assets. Basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.
With other assets such as shares, the basic-rate of CGT is 10% and the higher rate is 20%.
You will need to bear in mind that any capital gains will be added to your other income sources when working out which income tax bracket you’ll fall into for the year. Therefore it might push you into a higher bracket.
There are certain instances where you would not need to pay Capital Gains Tax on a property sale, however if you do need to pay it, then for UK properties sold on or after 27th October 2021 you must pay the tax owed within 60 days of the completion of the sale.
There are special rules for calculating your gain if you live overseas, you sell a lease or part of your land, your property is compulsorily purchased or you are selling property from the estate of someone who has died.
EXAMPLE OF CGT WHEN SELLING A SECOND HOME
Someone is selling a second home in England in 2023-24 for £220,000, after buying it 10yrs ago for £120,000.
Their capital gain is the increase in the property value, in this case £100,000.
They spent £5,000 on solicitor fees and estate agent fees from the sale of the property, which reduces the gain to £95,000.
They have no other gains or losses, so they can use their £6,000 CGT allowance – reducing the taxable gain to £89,000.
The rate of CGT depends on their other income, in this case let’s say it’s £25,000.
This means they’d pay 18% basic-rate CGT on £25,270 of their gain (taking them up to the threshold of £50,270) coming in at £4,548.60. And they’d have to pay the higher rate of 28% on the remaining £63,730, which is £17,844.40. Altogether the CGT payment would be £22.393.
CGT ON INHERITED PROPERTY
Your parents or relatives may want to leave you their home in their will. When they pass away, you’ll inherit the property at its market value at the time of death. There is no CGT payable on the death, but the value of the home will be included in the person’s estate. An estate is defined as being the total of someone’s assets and property, minus any debts and funeral expenses.
If you sell the property without having made it your own home, there could be CGT to pay.
The tax you pay will be based on the property’s value when you sell it, compared with its value on the date of death. If the value has increased, you’ll have made a taxable gain. As with any other property gains, you’re able to deduct any associated selling costs.
If you’re given the home while the owner is still alive and living in it, this is called a ‘gift with reservation’. Essentially this means the value of the property will still be included n the inheritance tax calculations when the gift giver passes away.
However, it may change things in terms of CGT. If you sell the property. The CGT you owe will be based on the increase in value between the date you were given the property, not the date of their death, and the date you sell it.
This first example explains what would happen if the property was gifted on death:
Example 1 Amount
Property value at date of death £200,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £200,000 minus £3,000 = £2,000
CGT allowance £6,000 for 2023-24, so no CGT is due.
Taxable gain None
This second example explains what would happen if you were given the property 10yrs before the owner’s death, but if the owner continued to live there until their death.
Example 2 Amount
Property value at date gift was made £140,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £140,000 minus £3,000 = £62,000
CGT allowance £6,000 for 2023-24
Taxable gain £62,000 minus £6,000 = £56,000
In the UK, you pay higher rates of CGT on property, than other assets. Basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.
With other assets such as shares, the basic-rate of CGT is 10% and the higher rate is 20%.
You will need to bear in mind that any capital gains will be added to your other income sources when working out which income tax bracket you’ll fall into for the year. Therefore it might push you into a higher bracket.
There are certain instances where you would not need to pay Capital Gains Tax on a property sale, however if you do need to pay it, then for UK properties sold on or after 27th October 2021 you must pay the tax owed within 60 days of the completion of the sale.
There are special rules for calculating your gain if you live overseas, you sell a lease or part of your land, your property is compulsorily purchased or you are selling property from the estate of someone who has died.
Someone is selling a second home in England in 2023-24 for £220,000, after buying it 10yrs ago for £120,000.
Their capital gain is the increase in the property value, in this case £100,000.
They spent £5,000 on solicitor fees and estate agent fees from the sale of the property, which reduces the gain to £95,000.
They have no other gains or losses, so they can use their £6,000 CGT allowance – reducing the taxable gain to £89,000.
The rate of CGT depends on their other income, in this case let’s say it’s £25,000.
This means they’d pay 18% basic-rate CGT on £25,270 of their gain (taking them up to the threshold of £50,270) coming in at £4,548.60. And they’d have to pay the higher rate of 28% on the remaining £63,730, which is £17,844.40. Altogether the CGT payment would be £22.393.
CGT ON INHERITED PROPERTY
Your parents or relatives may want to leave you their home in their will. When they pass away, you’ll inherit the property at its market value at the time of death. There is no CGT payable on the death, but the value of the home will be included in the person’s estate. An estate is defined as being the total of someone’s assets and property, minus any debts and funeral expenses.
If you sell the property without having made it your own home, there could be CGT to pay.
The tax you pay will be based on the property’s value when you sell it, compared with its value on the date of death. If the value has increased, you’ll have made a taxable gain. As with any other property gains, you’re able to deduct any associated selling costs.
If you’re given the home while the owner is still alive and living in it, this is called a ‘gift with reservation’. Essentially this means the value of the property will still be included n the inheritance tax calculations when the gift giver passes away.
However, it may change things in terms of CGT. If you sell the property. The CGT you owe will be based on the increase in value between the date you were given the property, not the date of their death, and the date you sell it.
This first example explains what would happen if the property was gifted on death:
Example 1 Amount
Property value at date of death £200,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £200,000 minus £3,000 = £2,000
CGT allowance £6,000 for 2023-24, so no CGT is due.
Taxable gain None
This second example explains what would happen if you were given the property 10yrs before the owner’s death, but if the owner continued to live there until their death.
Example 2 Amount
Property value at date gift was made £140,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £140,000 minus £3,000 = £62,000
CGT allowance £6,000 for 2023-24
Taxable gain £62,000 minus £6,000 = £56,000
Your parents or relatives may want to leave you their home in their will. When they pass away, you’ll inherit the property at its market value at the time of death. There is no CGT payable on the death, but the value of the home will be included in the person’s estate. An estate is defined as being the total of someone’s assets and property, minus any debts and funeral expenses.
If you sell the property without having made it your own home, there could be CGT to pay.
The tax you pay will be based on the property’s value when you sell it, compared with its value on the date of death. If the value has increased, you’ll have made a taxable gain. As with any other property gains, you’re able to deduct any associated selling costs.
If you’re given the home while the owner is still alive and living in it, this is called a ‘gift with reservation’. Essentially this means the value of the property will still be included n the inheritance tax calculations when the gift giver passes away.
However, it may change things in terms of CGT. If you sell the property. The CGT you owe will be based on the increase in value between the date you were given the property, not the date of their death, and the date you sell it.
This first example explains what would happen if the property was gifted on death:
Example 1 Amount
Property value at date of death £200,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £200,000 minus £3,000 = £2,000
CGT allowance £6,000 for 2023-24, so no CGT is due.
Taxable gain None
This second example explains what would happen if you were given the property 10yrs before the owner’s death, but if the owner continued to live there until their death.
Example 2 Amount
Property value at date gift was made £140,000
Property sold for £205,000
Selling costs £3,000
Gain £205,000 minus £140,000 minus £3,000 = £62,000
CGT allowance £6,000 for 2023-24
Taxable gain £62,000 minus £6,000 = £56,000