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
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
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.