If you have a buy-to-let property, a second home or have ever let out your home you may have to pay Capital Gains Tax (CGT) when you sell the property. You pay a higher rate of CGT on gains from residential property than on gains from other assets. How much you pay will depend on a number of factors including how long you have lived in it.If you have a buy-to-let property, a second home or have ever let out your home you may have to pay Capital Gains Tax (CGT) when you sell the property. You pay a higher rate of CGT on gains from residential property than on gains from other assets. How much you pay will depend on a number of factors including how long you have lived in it.
All costs of the purchase and sale of the property can be claimed against CGT, as can the cost of any capital improvements.
Principal Private Residence Relief and Lettings Relief
If at any time the property has been your only or main residence you should be entitled to some principal private residence relief (PPR). You get full relief for the years you lived in the home and the last 18 months you owned the home, even if you weren’t living there at the time.
If a property has been your main residence and has been let for any length of time you may also qualify for Lettings Relief. This can provide a further exemption of up to £40,000 per individual. A couple who jointly owns a property could benefit from up to £80,000 relief on the taxable gain. Lettings relief is only available if the property has been used as the principal private residence at some time and does not cover any proportion of the chargeable gain you make while the home is empty.
The gain calculations for companies disposing of residential properties which have paid the annual tax on enveloped building (ATED) can be even more complicated. A separate return needs to be filed for the gain related to the ATED period which will be subject to ATED related CGT. Any remaining gain will be subject to corporation tax.
CGT for non-residents
Since April 2015 non UK residents have been subject to capital gains tax on the sale of residential property in the UK. There are three main differences to tax payable by UK residents:
• Tax is only payable on the proportion of gain arising post April 2015.
• A non-resident Capital Gains Tax return must be filed with HMRC within 30 days of the sale, even if you did not make a gain.
• If the property is held by a non-UK company the rate of NRCGT is 20% which is greater than the current corporation tax.
Individuals should take care when selling a UK property during a period of non UK residence which lasts less than 5 years as any pre-2015 gain will become chargeable on their return to the UK.