House Selling Taxes: Expert Guidance

Understanding Capital Gains Tax

Capital gains tax is a kind of tax you need to pay when selling an asset like a house, but the tax is charged on the profitable amount only. For example, if you have purchased a house for £500,000 and then sold it for £600,000 earning a profit of £100,000. The profitable amount of £100,000 is considered a capital gain and you have to pay a capital gains tax for this profitable amount. However, this tax is not applicable for all types of residential houses and the percentage also depends on the type of property you are selling.

When to Pay Capital Gains Tax?

If you are selling your main home to buy a new house or to move to other places, you don’t need to pay the tax. Capital gains tax is charged when you sell a second home you might have purchased intending to gain profit and buy-to-let residential properties. The percentage of this tax varies from region to region. If you're selling a house in the UK that falls under the capital gains tax category, you have to pay 18% to 24% tax on the profitable amount. As per the capital gains tax rule of the UK, you need to pay tax on the following properties.

1. Buy-to-let properties
2. Business premises
3. Land
4. Inherited property

Properties Covered Under Capital Gains Tax

You must report and pay capital gains tax within 60 days after selling a property that matches the following property types.

• If you sell a residential property with a lot of land and an additional structure of 5000 square meters or more.
• Selling a property that was used as rental accommodation.
• Houses that you converted into business premises.
• You also need to pay the tax when selling a house purchased to gain profit.
• Selling a house that is not considered your main home e.g. a house used for renting, business purposes, purchased to gain profit, etc.

House Selling Taxes and the Deductions

As a seller, you can reduce your selling taxes by claiming some expenses that are eligible for a deduction. Here are some ways to minimise your capital gains tax bill.

1. You can deduct the house selling cost amount from the profitable amount after selling a house. You can deduct the amount spent on house repairs, renovations, estate agent commissions, and marketing expenses. Conveyancing fees and stamp duty fees are also deductible. You can add all these expenses to the basic amount and calculate the profitable amount after deducting all these expenses.
2. You can also minimise the capital gains tax by sharing your property with a partner. Sharing the ownership with a civil partner or spouse before selling it can allow you to avail of capital gains tax allowances.
3. Remember there are two types of taxpayers, a basic rate taxpayer and a high-rated taxpayer. If you are a high-rated taxpayer, consider transferring your house to a basic-rate taxpayer to reduce the tax percentage. For example, if your spouse is a basic rate taxpayer you can transfer the ownership to her and pay capital gains tax at a lower rate.
4. You can also claim a letting relief if you have lived in a house and at the time letting a porting of it to a tenant, you are eligible to claim the letting relief and reduce your capital gains tax.