If you own an asset, such as a property, you may face a Capital Gains Tax liability when you sell it.
However, Capital Gains Tax doesn’t apply to all property. So, our handy guide explains everything you should know about Capital Gains Tax and property.
What is Capital Gains Tax and when is it paid?
Capital Gains Tax is a tax on the profit or gain that you make when you sell or otherwise dispose of an asset. Disposing of an asset means that you sell it, give it away as a gift, exchange it for something else or transfer ownership of it to someone else.
Capital Gains Tax is paid on the gain that you make between purchase and disposal. It is not charged on the amount of money you receive for the asset – just the gain.
When you sell or otherwise dispose of property – such as a building, land or lease – you’ll usually have to work out if there’s any Capital Gains Tax to pay. However, you don’t normally pay any Capital Gains Tax on any gain made on your own main residence (see below).
Property that normally incurs a Capital Gains Tax liability on any gain being made includes:
- A second home in the UK or abroad
- A property you bought as an investment
- Business premises
Capital Gains Tax on your own home
As long as you’re entitled to full Private Residence Relief, you don’t have to pay Capital Gains Tax when you sell or dispose of your own home.
You must have used the property as your only or main residence throughout the time you’ve owned it. You may also have to meet other conditions.
Selling or giving your property to family
If you sell, give or otherwise dispose of a property to your spouse or civil partner you don’t pay Capital Gains Tax as long as you’ve lived together for at least part of the tax year in which you made the disposal.
However, if your spouse or civil partner later sells or disposes of the property, they’ll have to work out the tax due. You should keep a note of what you paid for the property as your spouse or civil partner may need this to work out their Capital Gains Tax liability when they sell or dispose of the property.
If you give away your home, for example to one of your children, you don’t have to pay Capital Gains Tax as long as you’re entitled to full Private Residence Relief. However, your child may have to pay Capital Gains Tax when they sell or dispose of it.
If you dispose of a property (that’s not your main residence) to any other family member – or to a spouse or civil partner that you haven’t lived with during that tax year – you’ll have to work out the gain or loss made and any Capital Gains Tax due.
Buying and selling property as a business
If you buy and sell property as a business, you pay Income Tax on any profits that you make, not Capital Gains Tax. Any profits that you make will have to be declared on your Self Assessment tax return.
However, if your property trading business operates as a limited company, profits on the sale of property assets will form part of the company’s profits. These will then be subject to Corporation Tax.