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How To Reduce Your CGT Liability?

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When it comes time to sell your home, it’s important to be aware of the possibility of Capital Gains Tax (CGT), as it can be a source of anxiety for many homeowners. But it doesn’t have to be! Here are some tips to help you understand and reduce your UK CGT liability.

If you only own one property, you won’t have to pay any CGT throughout your lifetime. For landlords or those who rent out multiple properties, the tax situation is a bit more complicated.

Every year thousands of people sell their homes, and they all know the tricks to reducing their CGT liability. With the right knowledge, you can be sure that CGT won’t come and surprise you unexpectedly.

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What Is Capital Gains Tax in the UK?

You may not have come across capital gains tax in the modern world. You may not be familiar with the UK’s tax system if you have never sold a house in the UK before. However, capital gains tax must be paid if you make a large amount of money in one transaction.

This could be through selling stocks or a painting; these are known as capital gains as you are earning a lot of money. You will have to pay capital gains tax when you sell your home, as this will generate a considerable profit.

Even if you give away an asset to a friend, you must pay capital gains tax. The rate of capital gains tax in the UK depends on your annual income and your other tax bracket.

Most people in the UK pay between 10-18% tax on their profits; this also applies to capital gains tax. If your normal tax rate increases, likely, your capital gains tax rate will also be higher.

How Do I Avoid Capital Gains Tax?

A house can have a huge impact on your financial situation, as it could mean you’re suddenly earning much more than usual.

Although this won’t affect your income taxes, it could mean you need to pay property capital gains tax. Many homeowners can avoid paying capital gains tax, such as those who have just sold their primary residence.

Most people only own one house at a time, meaning they likely won’t have to pay this tax. However, there are certain stipulations.

If the property has multiple buildings, is very large, is being used partly for business, is being flipped, or you own another home that could be considered your primary residence, then you will need to pay capital gains taxes.

Additionally, if you’re gifting the property to a spouse or partner, or you’re leaving it to someone in a will, then you won’t need to pay capital gains tax. Even if you’re selling a property owned by a deceased, dependent relative, you may still be exempt from capital gains tax.

It’s not complicated to get rid of capital gains tax, and in most cases, the average homeowner won’t have to pay it. As long as you only own one house, you likely won’t have to worry about this piece of UK legislation.

How To Reduce Your CGT Liability
The rate of capital gains tax in the UK depends on your annual income and your other tax bracket.

Does A Buy To Let Property Ever Qualify For Capital Gain Tax Relief?

Many people in the UK are landlords who purchase properties to rent out to others. This is known as a “buy-to-let” property and it has a different tax law in the UK. If the value of your property has increased since you bought it, you may have to pay taxes on it upon selling.

Fortunately, there is a relief called private residence relief that may reduce your tax burden. This relief allows ordinary homeowners who only own one property to avoid capital gains taxes.

If the property you are selling was your principal residence nine months ago or less, you are eligible for capital gains tax relief.

If you have lived in the property at the same time as your tenants, you are more likely to get this tax relief when you go to sell.

How Much Is Capital Gains Tax in the UK Going To Cost Me?

The amount of Capital Gains Tax (CGT) you pay in the UK depends on your tax bracket. Calculating what you owe in CGT doesn’t have to be hard, there are various CGT calculators available online.

Standard rate taxpayers will have to give 18% of their profits to the government – so if you make £500,000 in profit, you’ll need to pay £90,000 in CGT.

However, if your income falls into the higher tax bracket, you could be expected to pay 28% of your profits. This may seem like a lot, but it’ll be worth it since it’s the extra money you made from the sale.

So, if you made £500,000 in profit from the sale, you’d be liable to pay £140,000 in taxes at a 28% capital gains tax rate.

When Is CGT Due?

Capital Gains Tax is not hard to manage. You have a six-month window to report your profits and taxes, and then you can take care of what you need to pay.

This rule was put in place after October 2021, so it’s quite recent. If you have sold property and the new rules take you aback, make sure you look up more info online to guarantee that the rest of your sale was done legally and without issues.

Don’t get anxious about your capital gains tax; make sure to pay it on time and you’ll be all set.

How Do I Pay CGT
Paying your capital gains tax doesn't have to be difficult. The government has set up an easy payment portal through their official website so that you can pay your capital gains taxes online.

How Do I Pay CGT?

If you qualify to pay capital gains tax, it’s helpful to know how to do it! You can pay your capital gains tax online or through a certified public accountant.

When you report your earnings in your yearly tax return, you have paid your capital gains tax. Even though it may seem daunting, most tasks can be done online – and your taxes are no exception!

Paying your capital gains tax doesn’t have to be difficult. The government has set up an easy payment portal through their official website so that you can pay your capital gains taxes online.

Reducing Your CGT Liability

When you sell your home, it can be difficult to understand capital gains tax. Don’t panic though, you have a few options for payment. Is this the only property you have and have you lived in it as your primary residence within the last nine months?

If so, you don’t need to worry about this tax. And if you’re in the average tax category in the UK, you won’t have to pay a huge amount. Most people don’t need to think about capital gains tax ever and you could be one of them.

With this quick explanation of capital gains taxes and how to avoid them, you can make the most money possible from your home sale.

Even if you do have to pay, it’ll be less than half of the profits. So there’s no need to fear capital gains taxes – use your new knowledge to ensure you don’t pay too much. See? It’s that easy!

Any thoughts about selling your home?

Are you looking to sell your house? We buy houses in any condition. Get in touch if you are thinking of selling.

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