Avoiding capital gains tax on property UK wide

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If you’re looking to sell a property you’ve recently inherited, or you’re just curious about getting a fast and cheap house sale, avoiding capital gains tax on property in the UK is probably on your radar. Capital gains tax (CGT) is a tax on the appreciation value of an asset when it is sold. Whilst in business CGT is commonly paid on a variety of assets, for residential property owners, CGT normally only becomes an issue if they dispose of a property which belongs to them, but which isn’t their main residence. CGT isn’t payable on a main residence: if you’ve been living in the property for the duration of its time in your possession, you won’t usually need to pay capital gains tax. On additional properties which an individual or couple own, CGT will be payable on the value of the property when sold. HMRC has some useful guidance on CGT, including how it’s assessed and the rates payable.

Rates of CGT

For basic rate taxpayers (those with a gross income of £50,000 or below), the rate of CGT is 18%. Higher rate taxpayers (with a gross income of £50,000 to £150,000) incur CGT of 28%, as do exceptional rate taxpayers (those with an annual income in excess of £150,000).

How can you avoid paying CGT?

The short answer is that you can’t avoid paying CGT if you owe it. What you can do is to legally use a variety of tax avoidance strategies to reduce your CGT bill. Listed below are some of the main tips and tricks that can reduce the amount of CGT you need to pay.

Some costs can be set against the difference between the purchase and sale price

These include: – Stamp duty when purchasing. – Legal fees, surveys and estate agents fees during purchase and sale. – The cost of any refurbishments, improvements or other work which has contributed to improving the property whilst it was in your ownership.

Use your personal allowance

The government allows an annual personal allowance of £12,000 pa. This is tax-free income which can be obtained from a variety of sources. If you have no other income, the first 12K profit made on the sale of an additional property would not incur CGT, as it would be your personal allowance. Where a property is owned by a couple (or the property is also owned by a family member), both personal allowances can be used. This means up to £24K of profit from the property’s sale is exempt.

Private Resident Relief (PRR)

As stated previously, if you live in the property as your main residence, you are exempt from CGT for the period you live there. In addition, the final 18 months (this value falls to 9 months in April 2020) that you own a property, regardless of how it is used, is counted as PRR. What this means is that, for example, if you have owned a property for 10 years, lived in it for five and rented it out for five, then sell it, you would be required to pay CGT only for the time the property was rented out, minus 18 months. This would work out as follows: 120 months (total time of ownership) – (60 months (time the property was rented out) + 18 months (PRR). This would give a total time payable of 48 months out of 120 = 40% of the sale value would be eligible for CGT. So, for a basic rate taxpayer, if the profit on a property (after allowable expenses) was £80,000, the amount of CGT payable would be 40% of 18% of £80,000 = £5760.

Lettings relief – but watch for the CGT changes in April 2020

As at the time of writing, property owners who have let a property are entitled to CGT tax relief on the first £40k of profit following the sale of the property. This changes in April 2020: from that date, the tax relief will only be applied if the property owner has actually lived in the residence alongside the tenant.

Enterprise Investment Schemes (EIS)

These are portfolios of investments, usually in smaller businesses which have considerable potential (tech companies are popular additions to an EIS). If the proceeds from a property sale are invested in an EIS, CGT is deferred. This is combined with a reduced tax of 30% on other taxable income.

The CGT 15 years exemption rule

In some circumstances, a business which disposes of an asset after a minimum of 15 years isn’t required to pay CGT on it. The main condition relates to the fact that the business is owned by someone who’s 55 or over and either retiring or no longer able to work due to illness or incapacity. The asset must have been regularly used in the course of running the business. Anyone who is considering whether their business asset(s) might be exempt from CGT should seek professional advice, as the financial situation can be complex.

Have you got a property portfolio? Losses can be set against CGT

If you own two or more properties, it’s possible for the losses incurred in selling one to be offset against the profit made in selling another property. For example, selling one property at a loss of £30,000 and selling another with a profit of £40,000 means that CGT would only be paid on £10,000 (and may not be payable at all if the individual owning the portfolio hasn’t any other income, as the £10,000 would form part of their personal tax allowance).

Professional advice is essential when it comes to avoiding capital gains tax on property UK residents own

Particularly for people on higher rates of income tax, CGT can be a significant sum. Particularly if you have a buy to let property or have decided to sell a property asset, it really is vital to get the correct professional advice. A skilled estate agent, solicitor or financial adviser may well have the information you need to make the best decisions when it comes to minimising your CGT burden.

Sources of information and advice

Here at WeBuyAnyHomeUK.org, we have plenty of information available regarding how to reduce your CGT obligation in a tax year, as well as optimising the amount of taxable gain that you end up receiving. Because the best way to minimise CGT varies from person to person, depending on their particular financial circumstances, it’s vital to obtain tailored advice that’s going to work for you.

Avoiding capital gains tax on property in the UK with WeBuyanyHomeUK.org

WeBuyAnyHome is an online estate agent with particular expertise in buying properties in all sorts of condition, without the need to advertise on the commercial market. We make Avoiding capital gains tax on property in the UK a breeze. No matter what your financial background might be, WeBuyanyHome will be able to advise on your options for potentially slashing your CGT bill, or even ending up paying no CGT at all on your property sale. Get in touch to find out more about what we can offer.