Selling a property can be complicated, especially when it comes to capital gains tax.
Many clients have come to us stressed and frustrated, some of which have never heard of capital gains tax.
but we’re at hand to break it down as much as possible!
What is Capital Gains Tax?
Capital gains is the tax you pay on profits from a sale of an asset. The return has to be above 6,000 for it to be taxed, unless you have used your tax-free allowance.
When to pay Capital Gains
Within the first 30 days from your sale. Failure to submit and pay the tax can result in penalties.
How much is Capital Gains?
The taxable amount depends on your income for the year and what tax band you fall under. The income includes the profit from the sale and any other income. So, if you’re a basic rate taxpayer earning £35,000 and your profit from the sale is above £15,000, this would bring your income above the £50,000 mark and put you in the higher rate tax band.
Lower rate taxpayers will be liable to pay 18% tax on the gain and higher rates taxpayers will be liable for 28%.
Allowances
You have a Tax free allowance of £12,300. Profits above this will be taxed.
If you jointly own a property you can put both allowances together and have a tax-free allowance of £24,600.
How to reduce your Capital Gains Tax
There are a few things to consider when submitted capital gains that can reduce your Tax bill dramatically.
Allowable deductions:
You can reduce your profit by including certain expenses. The lower the profit, the lower the taxable amount.
Capital expenditure is one of these expenses, which is occurred when making an improvement/upgrade to an asset (property). This doesn’t include repairs and maintenance.
Improving furnishings in the property to a modern-day standard is not classed as Capital Expenditure. For example double glazing from single glazing, as this is standard for properties and not classed as an upgrade.
Other allowable deductions:
- Valuation Fees
- Advertising Fees
- Stamp duty
- Solicitor fees
- Estate agent fees
- Any reported capital losses from the last 4 years
Residential relief:
The percent of the time you lived in the rented accommodation can be deducted from the taxable gain.
If you had always lived in the property there would be no capital gains tax to pay.
There is also assumed residential relief for the last 9 months of ownership.
There’s a lot to consider when it comes to Capital Gains and it can get quite complicated. But here at Diamond Accounts, we love nothing more than finding ways to reduce your tax bill, so give us a call and we’ll show you just how low we can go!