Do you own one or more properties?
If so, there is a chance that you will face a sizeable Capital Gains Tax (CGT) bill when you come to sell your property. This is particularly likely if the property is not your main residence.
Our guide explains when you do, and don’t, have to pay tax on the sale of a property.
Paying tax when you sell (or dispose of) your main home
Under certain circumstances, you do not face a Capital Gains Tax liability when you sell or dispose of your main home. You won’t have to pay tax as long as:
- The property was your only home throughout the period you owned it (ignoring the last three years of ownership)
- You bought the property
- Expenditure incurred on the property was incurred primarily to use it as your home (rather than with a view to making a profit on its sale)
- You did use the property as your home throughout the time that you owned it
- You didn’t use the property for any other purpose than as a home for you and your family (and no more than one lodger)
- The garden and grounds of the property do not exceed 5,000 square meters (approximately 1.25 acres)
Remember that if you are married or in a civil partnership, you and your spouse or civil partner can have only one such residence between you.
You may still be entitled to tax relief even if you don’t meet every single one of these conditions.
Paying tax when you sell (or dispose of) property that is not your main home
If your property is worth more than you paid for it when you sell (or dispose of) it, there will normally be a ‘chargeable gain’ – and therefore tax to pay.
Remember that the first part of any gain is tax free – using the CGT annual exemption limit. This is currently £10,100 (tax year 2010/11).
When working out whether any Capital Gains Tax is payable, you can:
- Deduct the allowable costs of buying, selling and improving the property
- Offset any losses made on the property against other chargeable gains
Remember that you can also transfer the property to your spouse or civil partner (if you are living together) without paying CGT.
Documents you must keep when buying/selling a property
There are a number of documents that HMRC suggest that you retain when you buy or sell a property. These include:
- Copies of valuations which you are using to work out profits or losses
- Contracts for exchange or purchase of the property
- Evidence of payments for costs you are claiming for the purchase, improvement or sale of the property (solicitors invoices, bank statements showing fees etc)