Whether you are buying a house or selling a house in the UK, you need to pay certain taxes to the government. Of course, the type of tax that has to be paid, the amount of tax to be paid as well as the exemptions to the payable tax are dependent on the type of property as well as the value of the property. As a buyer, you are liable to pay stamp duty on your purchase whereas when you sell a property you need to pay capital gains tax. We spoke to estate agents in Leeds and here is everything you need to know about paying taxes when you sell your house in the UK.
Paying taxes on your home or residence
In very simple words, you need to pay capital gains tax when you make a gain, or a profit, when you sell your property that is not your home. However, if you are selling a property that you have used as your main residence since you bought it, then you are exempt from paying any capital gains tax. However, in this case, this property had to be used solely as your residence, which means the property or any part of the property could not have been used to run a business, including using it as a rental property. Also, the property, including the total land and the building, needs to be smaller than 5000 square meters. If the above-mentioned criteria are met, then you automatically get private residence relief which means you are exempt from paying any capital gains tax.
If you are selling a buy-to-let property, any business premises or business-related property, a piece of land or any type of inherited property, then you are liable to pay a property gains tax. However, if you are gifting your property to your spouse, your children, your grandchildren, or your partner, even if you are gifting your property to a charity, then you do not need to pay any tax.
Paying taxes on your second home and buy-to-let properties
If you have a second home, or if you have a property that you have invested in, then you will probably have to pay capital gains tax when you sell such a property. As mentioned above, you do not have to pay any capital gains tax when you sell your residence, but you will be liable to pay tax when you have ‘gained or profited’ from the sale of your second home. Basically, if you own two homes, then it is always advisable to claim the higher-value property as your primary residence so that you have to pay a lower capital gains tax when you sell your second home.
With that being said, the capital gains tax is levied on the total amount of capital profit or gain. Basically, you will have to pay tax on the value that your property has gone up. However, you can always reduce certain costs from this total amount such as the cost of general maintenance, estate agent fees, valuator or solicitor fees and so on. If the property has undergone any renovations or value additions, then you can use that also to reduce the total capital gain amount. Also, if you have bought the second property to flip and sell, or if you have bought a property to convert it into flats or an apartment building, then there might be certain exemptions that are applicable.
Also, a seller might be liable to pay inheritance tax if the estate that he or she has inherited is valued at over £325,000. In this case, the individual will have to pay an inheritance tax within 6 months of the person’s death. If the inheritance tax is not paid on time, then he or she will be charged a monthly interest for late payments. Keep in mind that the inheritance tax is valued at 40 per cent, so the individual will have to pay 40 per cent of the value of the property over and above £325,000. Now, when the owner decides to sell an inherited property, he or she is liable to pay a capital gains tax based on the value of the property as well as the value of the capital gains.