Decisions relating to property ownership are some of the biggest that people make in their life, not least because of the financial commitment that it entails. From mortgages to taxation there are a lot of different aspects to consider when making any property decision. Selling houses especially can have a large impact on your taxes so here’s a quick summary of what you can expect:
If you sell your main residence with the intention of buying and moving into a new primary residence then you generally do not need to pay capital gains tax under private residence relief. However, if a home is not your primary residence then you will need to pay this tax on any profits you make. This includes second homes, both bought and inherited as well as buy-to-let properties. If your primary residence has been partially leased out, or used for business then it may also be applicable for this tax.
Inheritance Tax
If you have inherited a property, keeping it brings inheritance tax, currently charged at 40% over £325,000. Although the property will likely make up quite a large sum of this, the total estate value includes other assets such as personal possessions, shares, or business assets. Usually, this tax will be paid for by the deceased’s estate
For most people inheriting a house, they choose to sell to help pay this tax. However, this does open you up to capital gains tax on any profits they may make from the sale.
Capital Gains Tax
If you decide to sell a home that you’ve inherited or previously bought you will have to pay capital gains tax in any profit above £12,300 in any tax year. This must be paid within 30 days of selling, and generally has a higher rate of taxation than non-property assets.
The rate at which capital gains tax is charged depends on the tax bracket that you fall into. Any profit made from selling the property are added to your taxable income (e.g. salary) and the appropriate allowances and tax reliefs are applied. This remaining figure dictates your tax bracket. If it totals over £50,000 then you will be expected to pay 28% on your gains from residential property, falling to 18% if the figure is between £12,300 and £50,000.
Other Fees
Although not technically tax, other fees that may occur when selling a house include those to estate agents, home improvement work, and solicitor’s fees. Fees to third parties such as estate agents and solicitors can be deducted from the taxable gain you make from the property.
Stamp Duty is another fee to bear in mind. Although this only needs to be paid when buying a property (currently only applicable on properties over £500,000), it can also be deducted from your taxable gain. This can directly affect how much tax you will have to pay.
Contact Simpson and Weekley today to find out more about how we can help you sell your house. Our complimentary financial services are available to help give financial advice tailored to your situation. For more information about capital gains tax, please visit the gov.uk website.
*All information correct August 2020