If you will be selling your home but it is not your main property, then you may have to pay Capital Gains Tax. Our guide to paying Capital Gains Tax when selling your home looks at when tax might be payable and how much it will be.

If you are selling your property and it is your main home, you will not usually need to pay Capital Gain Tax. However, if you are selling one of the following, then you are likely to have a Capital Gains Tax liability:

• An investment or buy-to-let property
• Commercial premises
• Land
• Property you have inherited

When is selling your property free from Capital Gains Tax?

If you sell your main home, then ‘private residence relief’ will usually apply, meaning that Capital Gains Tax will not be payable.

You are entitled to private residence relief or capital gains exemption if all of the following apply to the home you are selling:

• It is your only home and is a residential property
• You have occupied it as your main home throughout your ownership of it
• You have not had a lodger and have not rented it out or rented out part of it
• You have not used all or part of your home exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use)
• The combined area of the grounds and buildings do not exceed 5,000 square metres in total
• You did not purchase the property with the sole purpose of making money

If you are married or in a civil partnership then as a couple you can only count one property as your main home.

When do you need to pay Capital Gains Tax when selling a home?

Capital Gains Tax on the sale of a property is payable in a number of situations, including the following:

• You have another home that is your main home
• The property was purchased as an investment, such as a buy-to-let or holiday home or for development and resale
• Part of the property is used exclusively for business
• Where the land and buildings extend to 5,000 square metres or more
• You have sub-let part of the property, although having a single lodger does not generally count

How long do I have to pay Capital Gains Tax when I sell a property?

You must pay Capital Gains Tax within 60 days of the completion of the sale of the property. This is done online by advising HM Revenue & Customs.

How is Capital Gains calculated on property?

The capital gain is generally the difference between what you paid when you bought the property and how much you made when you sold it. 

In the following circumstances, you should use the market value of the property instead of the sale or purchase prices:

• The property was given to you as a gift (but not by your spouse or civil partner) – use the market value as at the date the gift was made
• You sold the property for less than it was worth on the open market – use the market value as at the date of sale
• You inherited the property but do not know the Inheritance Tax value – use the market value as at the date of death
• You owned the property before April 1982 – use the market value as at 31 March 1982

You can ask HMRC Shares and Assets Valuations (SAV) team to check your figures for you by completing and sending in form CG34. If you wish to use this service, you should ensure that you do so in plenty of time so that you can meet the 60-day deadline for payment.

Capital Gains Tax rates on property are higher than on other assets. If you are a basic-rate taxpayer, you will be charged CGT at a rate of 18% when you sell. If you are a higher-rate taxpayer, the rate will be 28%. 

The capital gain that you have made on your property will be added to your other income for the year, so you need to be aware that this could mean that you fall into a higher tax bracket than you might normally be in.

There is a Capital Gains Tax allowance of £12,300 for the tax year 2022/23, meaning that you can make up to this amount free of the tax. A couple each has this allowance, meaning they can make a combined total gain of £24,600 tax-free. Unused allowance cannot be carried over to the following tax year.

Capital Gains Tax deductions on property gains

You are entitled to deduct costs from the taxable gains that you make when selling your property. This includes:

• Estate agent’s fees
• Legal costs
• Stamp Duty
• Costs of improvements such as adding an extension

Ordinary maintenance costs cannot be deducted, nor can mortgage interest.

Capital Gains Tax on sale of your UK home if you live abroad

If you live overseas and are not resident in the UK for tax purposes you may have to pay Capital Gains Tax when you sell your UK home.

Tax is payable on gains made since 5 April 2015. You will not usually need to pay tax for any tax years where you or your spouse or civil partner spent 90 days or more living at the property. However, if during that same year you also let part of your home, used part of it exclusively for business or the area of the property and grounds exceeds 5,000 square metres you may still have a Capital Gains Tax liability.

Contact our conveyancing solicitors in Beverley, Hull and York.

Working out whether Capital Gains Tax is payable on a property sale and, if so, how much is not always straightforward. It is important not to underpay or you could face penalties. Our property team can advise you on your situation and ensure that you are compliant with the UK tax rules.

If you would like to discuss whether you will have a Capital Gains Tax liability on selling your property or you have any questions you would like to ask our East Yorkshire lawyers, ring us on 01482 300 200, email us at welcome@lockings.co.uk or fill in our contact form and we will call you back promptly for a FREE initial chat.