Do you pay tax when selling your house? Whenever you buy or sell something, you are liable to pay tax to the HMRC while residing in the United Kingdom. If you are unsure about the tax implications of selling your house, this article provides a comprehensive guide to all the tax liabilities you may encounter and answers the question, do you pay tax when selling your house?”

Talk to our best accountants and bookkeepers in Croydon at CruseBurke. You will get instant help whether do you pay tax when selling your house.

Do You Pay Tax When Selling Your House?

Do you pay tax when selling your house? Property taxation is variable for different property types. There is a different tax percentage for houses, personal residence property, commercial property, and apartments. You need to have a strong knowledge of property sales/purchases if you are doing real estate business in the UK. In general, you should be updated about recent tax changes made by the UK government on selling your residence or other property.

There are multiple options that you need to consider when selling your home. There might be some taxes that you need to pay when selling your house.

The House You’re Selling is Your Main Residence

In general, there is no capital gains tax (CGT) imposed when selling your main residence. This is due to private residence relief given by the UK government. On the other hand, if you inherited your main residence and you are planning to sell it, you don’t need to pay inheritance tax either, all because you have declared that property as your main residence.

The House You’re Selling is Not Your Main Residence

In the UK, if you are selling a house that is not your main residence, then you are liable to pay capital gains tax under rules set by the UK government. Moreover, if you have inherited the property you are selling, then you are liable to pay inheritance tax along with capital gains tax. Quite a toll on your pocket!

Private Residence Relief

You are exempt from capital gains tax (CGT) when you sell your home if all of the following conditions are met.

• You have only one home, and you have lived in it as your main residence since the day you bought it.
• You have not rented out any part of the home and used all of it as your main residence, but this excludes having a lodger.
• You have not used any portion of your home as your office or for any business purposes, for example, as a warehouse or temporary office.
• The total area of the home is also considered in private residence relief. The private residence relief will be applicable if the total area of the building or home is 5000 square meters in total.
• You do not intend to make a gain from this property; instead, you own it as your only main residence.

If all the above-mentioned conditions are met, the private residence relief applies to the deal you are making.

Work Out Your Gain

If the above conditions are not met and you do not qualify for private residence relief, then you need to work out the tax amount on the amount gained when selling your home. The gained amount is the difference between the actual price and the amount earned while selling the home. You should use the market value for estimating the tax amount if

• It was gifted to you by friends or family. There are different taxation rules set by the UK government for gifted assets such as property, luxury and antique items, etc.
• If you sold the home at a price less than the price it was worth, just to help the buyer.
• You inherited the home, and you do not have enough knowledge of the inheritance tax value of the home.
• You owned the home before April 1982.

If you’re not a resident in the UK for tax, you only pay tax on gains since 5 April 2015.

Deducting Costs

You can deduct the costs of buying, selling, or improving your property from your gain. These include:

• Amount paid to estate agents and solicitors as fees
• Costs of renovation and improvement works done at home, for example, extension of home, normal maintenance costs like decorating, painting, woodwork, flooring, ceiling works, etc.

Some costs cannot be deducted, such as interest on a loan to buy your property. You should contact HM Revenue and Customs (HMRC) if you are unsure of the cost deduction process.  There is a set of special rules for assessing your gain if you sell a home that is on lease or your home is compulsorily purchased.

Work Out If You Need to Pay Capital Gains Tax

After assessing the gain amount on selling your home and the amount of relief you can claim from the HMRC, you need to work out if you are eligible to pay the capital gains tax.

You cannot use the calculator if you:

• Sold other assets on which tax is charged in the same tax year, for example, shares or stocks, property or vehicles, etc.
• Reduced your share of a property that you still jointly own
• You are claiming tax reliefs from the HMRC other than private residence relief or letting relief
• are a company, agent, trustee or personal representative

If you are eligible to pay the capital gains tax, then you must pay it within the time limit given by the HMRC, which is within 60 days of selling your property.

Living Away from Your Home

If you are living away from home and you intend to sell the property, then you may get less private residence relief compared to if you are residing in your home. However, you always get relief in tax relief for certain periods. The rules for paying tax are different if you are not a UK resident.

Conclusion

Do you pay tax when selling your house? There is always a certain amount of tax that is to be paid when selling your home. You can get private residence relief if you have been living in your only home since the day you bought it. A capital gains tax and an inheritance tax are charged if you are eligible for both. If you are living away from home, there is less private residence relief, and there are rules of taxation for UK non-resident individuals.

Reach out to our intelligent and clever-minded guys to get the answer to your queries in the UK, we will get to your answers quickly. We will help to decide how to deal with your tax implications.

Disclaimer: The information about do you pay tax when selling your house provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.