Reducing Capital Gains Tax: Strategies for House Sellers

Capital Gains Tax: A Brief Overview

Your capital gains tax will be calculated on the difference between the sold price of a property and the initial purchase price. For example, you purchased a house for $200,000 and after holding for some time sold the same property for $250,000 gaining a profit of $50,000. The capital gains tax will be levied on the profitable amount i.e. $50,000. If you are selling a property in the UK, you are supposed to pay an 18% capital gains tax on the profitable amount as a basic-rate taxpayer. Sellers categorised as high-rate taxpayers have to pay the tax at the rate of 24%. Capital gains tax rate also depends on the type and nature of a property.

Ways and Means to Reduce Capital Gains Tax

You can employ several options to reduce your capital gains tax and maximise the profits. Here are some options for you.

1. Deduct all Eligible Expenses

When calculating the net profit gained from a sold property, you can deduct expenses like the amount spent on repairs and renovations before selling it. You can also maximise your tax benefits by deducting the amount paid as a fee for different legal services like stamp duty paid at the time of purchase, estate agent commissions, Solicitors’ fees, etc. Capital gains tax can also be reduced by claiming buying and selling costs like home report expenses, marketing, and other expenses.

2. Transfer the Ownership

If you fall under the high-rated taxpayer category and are supposed to pay tax at higher rates, consider transferring your property to a basic-rate taxpayer such as a civil partner or spouse. Paying the capital gains tax as a basic-rate taxpayer means paying a low percentage on profits gained from a sold property.

3. Claim Private Residential Relief

Sellers can claim tax dedication if the profit is gained by selling the main house or the only residence a seller possesses. You are not obligated to pay capital gains tax when selling your main residence. The tax exemption is also applicable to other structures falling within the premises of a house.

4. Utilise Your Annual Tax Exemptions

Every taxpayer has some annual tax-free allowance that can be used to reduce the capital gains tax. You can also consider sharing the ownership of a property with your spouse to avail more tax-free allowances. By sharing ownership, you can use annual tax-free allowances of two persons to reduce the capital gains tax significantly.

5. Explore the Letting Relief

Next, is the letting relief which a house owner can claim when he is using a portion of a house for their residence and another portion has been let out as rental accommodation. So, when filing your capital gains tax, explore this option to maximise your tax benefits.