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Tax implications, in respect of property, vary depending on numerous factors such as whether you are buying or selling and whether it is your main or secondary home. Generally, you won’t need to pay tax on the sale of your main home. However, second homes and buy-to-let properties are subject to Capital Gains Tax (CGT).
What is Capital Gains Tax?
Capital Gains Tax is the tax you pay on any gain made when you sell a property that is not your main home. Your gain is the difference between what was paid for the property (or the value at when you acquired it if not purchased) and the amount for which it is later sold. The rates of tax vary according to the band that applies, for example a basic-rate taxpayer will pay 18% on gains they make when selling secondary property while higher and additional-rate taxpayers will pay 28%.
All taxpayers have an annual CGT allowance of £12,300 for 2022-2023. This means that the gain on a sale of a second home will be tax free up to £12,300. Those who jointly own property can potentially combine this allowance to £24,600. It is important to note that you are unable to carry over any unused CGT allowance into the next tax year.
To calculate the CGT payable, use the following formula: Gains – CGT Allowance x CGT Tax Rate
When and how do I submit my Capital Gains Tax return?
Previously, taxpayers were required to pay their CGT liability within 30 days of the sale completion date. The 2021 Autumn Budget increased the time limit to 60 days for completions on or after 27 October 2021. Should you fail to meet the 60-day deadline, you may have to pay interest and a penalty fee.
To report and pay your CGT liability, visit the Government website. Alternatively, you can ask HM Revenue and Customs for a paper form if you cannot use the online portal.
If you are thinking of selling a second home, contact our property department on 01242 801748 or visit www.franksmithandco.com
