The topic of Capital Gains Tax on property can be a complex one, affected by many conditions, exemptions and rules. You may find that you are liable for Capital Gains Tax on property when you sell or otherwise dispose of it if the value of the property has increased since you acquired it. The gain in value is taxed as part of your overall Capital Gains for the financial year, as follows:
- The first £9,200 of taxable gains fall into the AEA (Annual Exempt Amount) and are exempt from tax.
- Further gains are added on top of your taxable income for the year and taxed as if the top amount of the total sum.
- Taper relief reduces the Capital Gains Tax on property payable as a result of disposing of it, based on the period of time since the property was acquired. Business assets benefit from 75% reduced Capital Gains Tax after just two years, while non-business assets have payable tax reduced by a maximum of 40% after a period of ten years.
In the case of property, there are some special exemptions that can help to mitigate Capital Gains Tax. The most important is private residence relief, which means that your primary residence is exempt from the tax under certain conditions:
- As long as the property does not have gardens or grounds that exceed size limits of 0.5 hectares, or have extensive outbuildings.
- As long no part of the building has been exclusively used for business purposes.
- As long as it was not bought primarily with the aim of making a profit.
- Even if it is no longer your primary residence, as long as you sell it within 3 years of it ceasing to be your main home and it would still otherwise qualify for private residence relief.
You can only have one property nominated as your primary residence. In the case of a marriage or civil partnership, both partners must choose a single property as the primary residence for both of you.
Capital Gains Tax on property includes some particularly complex law so it is important to fully research and understand whether gains on your property will be liable to tax or exempt. For more information check out our Fair Investment Tax Bookshop, which is stocked with useful guides and software such as:
Property Gains Tax Calculator