Do I have to pay Capital Gains Tax (CGT) when I sell my home?

For the majority of people selling their home in the UK, Capital Gains Tax (CGT) will not apply. But what exactly are the rules and are there any exceptions?

See also:

Do I have to pay Capital Gains Tax (CGT) on a transfer of equity?

Selling your home

You do not have to pay any Capital Gains Tax (CGT) when selling your home if all of the following apply:

  • you have one home only and have lived in it as your main home for the whole time you have owned it
  • you haven’t let part of it out
  • you haven’t used part of it for business only
  • the grounds, including all buildings, are less than 5,000 square metres in total
  • you didn’t purchase the property purely to make a gain

If you meet all of the above criteria, you will qualify for Private Residence Relief and no CGT will be payable.

If any of the above do apply, you may have to pay some CGT.

Under what circumstance will I have to pay CGT?

You will normally have to pay CGT when selling a second home such as a buy-to-let property or holiday home. This means that if your second property has increased in value by more than your annual CGT allowance then there will be tax due.

You may also have to pay CGT if you use your home partly as a business premise, eg. a live/work property.

What about married couples?

If you are married. or in a civil partnership, you and your spouse can only collectively count one property as your main home at a time.

What are the CGT rates in the UK?

For the tax year 2020/21, you will have an annual Capital Gains Tax allowance of £12,300. If you are married or in a civil partnership you can double up for jointly owned assets to give an allowance of £23,700.

If your annual gain exceeds this amount, CGT will be payable on the amount that exceeds your annual allowance.

CGT is paid at 10% if you are a basic rate taxpayer and at 20% if you are a higher rate taxpayer.

However, CGT on property is paid at a higher rate of 18% on gains for basic rate taxpayers and 28% for higher rate taxpayers.

Do I have to do anything to claim CGT back?

No. When selling your home, you do not need to pay and reclaim CGT, you will get Private Residence Relief automatically.

When do I have to pay CGT?

CGT will be payable when you file a tax return for the respective financial year

Is there anything I can do to mitigate CGT?

When completing your tax return, remember that your spouse's allowance allows you to ‘double up’ your annual CGT allowance.

Timing can also be critical.

If you are completing your sale in April. i.e. near the end of the tax year, you may want to try and delay if you have used your CGT allowance up for the previous year.

CGT is calculated from the date of exchange of contracts rather than completion. This means that you won’t be able to exchange in one year and hold off completion until the following tax year.

Disclaimer: The above does not constitute tax advice. You should consult with a financial adviser for further information about Capital Gains Tax.

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Gaynor Haliday, Legal researcher

Author:
Gaynor Haliday, Legal researcher