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How To Tell HMRC About Selling Your Property?

Property Saviour » Tax » How To Tell HMRC About Selling Your Property?

For many individuals, the second their home is sold, they experience a great sense of relief. Once all the paperwork is finished, you can move forward with your life, right?

However, something you may have forgotten is that when you sell a property in the UK, taxes may be due, and that means you must inform the HMRC of the sale.

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Informing the HMRC

The first step you need to take is to let HMRC know that you have sold your property by submitting a Capital Gains Tax (CGT) return.

Your conveyancing solicitor may handle this for you, but it’s important to know how to do it on your own if they don’t or if you sold it privately.

The most effective way to tell HMRC about the property sale is to go to their website and complete the Capital Gains Tax UK Property Disposal Return Form.

The website will ask you for the following information regarding the property:

  1. Date of purchase,
  2. Address and postcode,
  3. Date of sale,
  4. Value of the property when bought and sold,
  5. Costs associated with buying, selling, or improving the property,
  6. Dates when you lived in the property.

Understanding the Taxes You May Face

Taxation on the sale of residential properties is referred to as capital gains tax (CGT). CGT is payable when the value of a home has increased since it was purchased.

For instance, if you bought a property for £200,000 in 2012 and then sold it for £270,000 eight years later, you would have to pay CGT on the £70,000 gain. In the UK, the CGT rate on residential property can range from 18% to 28%.

In most cases, CGT does not apply if you are selling your primary residence. However, there are exceptions to this rule.

These include: if your home has a large land area or additional structures (usually 5,000 square metres or more); you are subletting part of the property; it is a mixed-use property; you purchased the home with the intention of flipping it to make a gain; you bought the property to rent out to tourists (e.g. Airbnb); you do not permanently reside in the home; etc.

If you are unsure if your property fits any of these criteria, you should consult a financial or legal professional for advice. They can help you to determine whether your property is exempt from CGT.

How To Tell HMRC About Selling Your Property
The most effective way to tell HMRC about the property sale is to go to their website and complete the Capital Gains Tax UK Property Disposal Return Form.

Do I have to pay tax in UK if I sell property abroad?

You have the right to sell your house or flat in the UK even if you are living abroad. There are no laws that stop you from selling your UK home after you have moved to another country.

There Are Some Allowances

There are certain allowances for Capital Gains Tax (CGT). You’ll only have to pay this tax if your profit is more than the annual allowance set by HMRC.

The current allowance for 2021-2022 is £12,300 per person. This means that your property value has to go above this amount before CGT is applied.

For example, if you bought a house for £200,000 and then sold it for £270,000 after eight years, you would have to pay CGT on £70,000 minus the £12,300 allowance.

It is recommended to get one or more professional valuators to provide an accurate market value of your home since HMRC will check the transaction later on.

In general, if you only have one residence which you live in permanently, you won’t have to pay CGT when you sell it. However, if you own a second home, you will almost always have to pay CGT on any gain in its value.

HMRC usually states that if it’s not your permanent residence, then you will have to pay CGT. Of course, you can subtract the CGT allowance.

If You Must Pay Capital Gains

UK residents who dispose of their property on or after 27 October 2021 have 60 days from the completion date to report the sale to HMRC and pay any Capital Gains Tax (CGT) that is due.

For disposals prior to 27 October 2021, the deadline for reporting is 30 days.

The rules for non-resident CGT are slightly different, however; non-residents must report the sale or disposal of UK property within 60 days of completion, regardless of whether they owe any CGT. Non-resident CGT is charged at a similar rate to UK residents.

How do I report a sale of property in the UK?
HMRC usually states that if it's not your permanent residence, then you will have to pay CGT. Of course, you can subtract the CGT allowance.

How Much You Might Owe?

Today, it’s easy to work out how much Capital Gains Tax (CGT) you’ll be paying. Say you sell a cottage for £200,000, but you purchased it five years ago for £150,000. That’s a gain of £50,000.

To calculate the CGT, subtract the annual CGT allowance from this gain. That’s £50,000 less £12,300, which equals £37,700.

The amount of CGT you pay depends on whether you’re a high-rate or low-rate taxpayer. For high-rate taxpayers, the CGT rate is 28%. For low-rate taxpayers, it’s 18%.

So, if you’re a high-rate taxpayer, you’ll pay £10,556 in CGT – that’s £37,700 x 28%. If you’re a low-rate taxpayer, you’ll pay £6,786 – £37,700 x 18%.

These figures only apply to residential properties. The calculations vary slightly for commercial, industrial, or mixed-use properties.

What records do I need to keep when I sell my home?

Whenever you sell a house in the UK, it is strongly recommended that you keep the relevant paperwork in a secure location for at least 5-7 years.

This is because HMRC may carry out audits on those who have sold their homes. Therefore, it is important to keep the following documents:

  • Documents related to the initial purchase of the house, as well as its value.
  • Evidence of how long you resided in the home, such as mail letters, bills, or property tax.
  • Details regarding the sale of the home.
  • Data on the value of the home when it was sold.
  • The amount of profit you made on the sale of the property.
  • All communications with HMRC.

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