Capital Gains Tax

When you sell a property that’s not your home and make a profit, you might beliable to pay capital gains tax.

From 6th April 2020, the annual exempt amount for individuals and personal

representatives increased from £12,000 to £12,300.  For trustees of settlements, the

annual exempt amount increased to £6,150. Many had feared capital gains tax

would increase by up to 40 per cent for higher taxpayers in the 2021 Budget, but

this did not happen.

HMRC provides a tax calculator for working out how much capital gains tax you have

to pay, if any. The calculation takes into account the market value of your property,

minus any estate agents fees, solicitor fees, and the costs of major improvement

works.

UK residents now have to pay within 30 days of completing the sale. They were

previously able to wait until the end of the tax year to include it in their annual tax

return. You may have heard of ‘lettings relief’. This was a reduction in capital gains

tax for landlords who lived in the properties they let out. From April 2020, lettings

relief is only available for live-in landlords who are in shared occupation with their

tenants.

If that doesn’t apply to you, you may still qualify for private residence relief, which is

a percentage reduction in capital gains tax, based on the number of years you lived

in a property plus the last nine months before you sold it.

For example, let’s say you lived in a property for five years, then let it out for 15.

You would get private residence relief for those first five years, plus the last nine

months you rented it out. Five years and nine months is 28.7 per cent of the time

you owned the property.

You’d therefore gain private residence relief on 28.7 per cent of the gain you make

when you sell the property.

Corporation Tax vs. Income and Capital Gains Tax

Businesses are taxed differently from individual taxpayers, instead of income and

capital gains tax they pay corporation tax.

If you choose to do a business as a limited company, you may have to register for

corporation tax, file a corporation tax return and either pay corporation tax or report

that you have none to pay.

From April 2021, the Government’s Making Tax Digital rules will apply to all

landlords who operate as VAT-registered businesses, regardless of their taxable

turnover. This means that all such businesses (not just those with a taxable

turnover above £85,000, as was previously the case) will need to use Making Tax

Digital-compatible software for the filing of digital tax returns for VAT periods

beginning on or after 1 April 2022, with a few exceptions.

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