All you need to Know about Tax when Selling your House
Every home owner need to take the issue of taxes into account when selling property. While home buyers will have to worry about stamp duty land tax, home owners are required to pay capital gains tax.
Even then, you do not have to pay the Capital Gains Tax when selling your home if
- You lived in the house as your main home for the entire period you owned it.
- You have let a section of it or are using part of it for business.
- Your home sits on a ground that is smaller than 5,000 square metres.
The logic behind this is simple. You are automatically entitled to a tax relieve that is called Private Residence Relief thus you do not have to do anything. Even then, if you do not meet all the criteria above then you may be required to pay some Capital Gains Tax.
Here are some of the important tax obligations that you must be aware of when selling your home:
Private residence relief – Here, you are not required to pay Capital Gains Tax when selling your home when the following applies;
- You only have a single home that you have lived in as a main home for the entire period of ownership.
- You have not let part of the home.
- You have not used a section of the home for business.
- The total area of the property where the house is located is less than 5,000 square metres.
- You did not purchase with the intention of making profit.
If you meet all the criteria listed above then you are guaranteed of a tax relieve known as the Private Residence Relief. Civil partners and married couples are allowed to count one property as the main home.
Working out your gain
Generally, you are required to pay taxes when selling property but you do not qualify for the full Private Residence relief. Consequently, it is only right that you work out the gain you will obtain from the sale.
This is usually the difference between the amount you paid for the home and the amount you sold for. You can deduct the cost of selling, buying and improving the home from your gain.
These will usually include solicitor’s and estate agents’ fees and the cost of any improvement works such as an extension. However, interest on a loan you used to purchase the property or normal maintenance costs do not apply.
If you owned the own the home before April 1982 or it was given to you as a gift or you inherited it or you sold it for less than its actual worth then you can use the market value. You will do well to stick by the preset rules when calculating your gain.
Once you are aware of your gain as well as the tax relief you are entitle to, then you can work out and pay the Capital Gains Tax.
What if you do not live in the home?
Well, this does not mean that you will not entirely get a relief rather, your Private Residence Relief will be less. Even then, the rules are different if you are not a UK resident.
Overall, the question of paying taxes is a major consideration when you are selling your home. Thus, you will do well to ensure that you equip yourself with adequate knowledge so that you are well aware of your tax obligations. This is also good for a smooth transaction.