When you sell your property in the UK
, you won't just be earning money, you'll be spending it too. Don't just focus too much on the final price the buyer will pay you. That's the end goal, sure, but there's a lot you need to stay on top of to get to it. One of them is your capital gains tax. When you sell a home in the UK, you'll be liable to pay the capital gains tax. Simple enough, right? Well, at times, it can get more complex than that. Especially if you're not familiar with it yourself. Get to know more about it first!
What is Your Capital Gains Tax Rate?
As with any other taxes in the UK
, your capital gains tax comes with a rate you have to pay. Currently, the capital gains tax with regards to properties has two rates. The first is 18% for standard taxpayers and 28% for higher taxpayers. But make no mistake! No matter what tax bracket you fall under, your capital gains tax rate depends on your gain (profit from selling the property). So the bigger you earned, the more likely your rate will become 28%. It doesn't have anything to do with how much income you earn.
How Can You Calculate Your Capital Gain?
Speaking of your gain, you can actually calculate how much it is so you can already know what your capital gains tax rate will be. All you have to do is subtract the amount you originally bought the property for from the sale price. It's that simple. Also, there are some instances wherein you can also deduct the various costs you paid and you bought and sold your property in the UK. These include the real estate agent's commissions, legal fees, the various property taxes, and even your mortgage payments.
Do You Get a Capital Gains Tax Allowance?
Here in the UK, there's such a thing as the capital gains tax allowance. All taxpayers have it and you get it every year. So what is it, exactly? Well, the capital gains tax allowance is an amount you earn tax-free. For now, the allowance is £12,300.00 per year. However, this can go higher or lower depending on various factors. Additionally, if you and your spouse both earn this allowance, you can combine the two to help pay for the tax and other legal costs regarding real estate in the UK.
What Are The Exemptions?
As with any other taxes, there are a few instances that can exempt you from having to pay the capital gains tax in the UK. Firstly, if the property you just sold was your main home, you don't have to pay this tax. If it's you're only property in the UK, this makes you exempt from the tax as well. And in terms of inheritance, any property given to a spouse, civil partner, or to charity is also exempt from the tax. Any property you give to your child, your legal heir, however, is not!
Can I Reduce My Capital Gains Tax?
Do note that it's possible to reduce your capital gains tax here in the UK. One of the ways to do it is to deduct the costs from when you bought and sold the place. These costs include the solicitor's fees, the stamp duty you paid when you bought the property, and when you improved or renovated it. Any costs in maintaining the home, however, are not part of this. Moreover, if you share ownership of the property with your spouse, their capital gains tax allowance can also help reduce your own.
When you sell your property in the UK, you'll also have to deal with the capital gains tax here. Get to know all about it to ensure that you won't get into any legal trouble when you deal with this real estate process in the country.