Q: Do I have to pay Capital Gains Tax (“CGT”) when selling my home?
A: Not usually. Most of the time, sales of houses that have been lived in by the owner will qualify for Principal Private Residence relief (“PPR”). There are, however, some exceptions to the rule, particularly if the whole area of the house and gardens exceed half a hectare – unless a larger area is of a “character appropriate” to having a bigger garden (tax law is full of exceptions to the exceptions!)
If you have used a defined part of the property exclusively for business purposes (other than having a single lodger) then that proportion won’t benefit from PPR.
Q: Does CGT apply if I dispose of a property (such as a buy-to-let or inherited property) that isn’t actually my home?
A: Unless you lived in the property as your usual residence less than 3 years before the sale or gift you may have to pay CGT. The CGT would be based on how much profit (ie “gain”) you made from selling the property. (There are rules about calculating a gain if you give the property away to someone other than a spouse, or sell it below market value).
Q: How much tax do I have to pay?
A: It is only the profit, or ‘gain’, in excess of the current Annual Exemption (£11,000 until 5th April 2015), which would be taxed. You can also deduct capital losses from previous tax years. Basic rate tax payers pay at 18%; everyone else pays 28%.
Q: Do I still have to pay CGT if I am developing properties just so that I can sell them on?
A: If you are a property developer, you would not have to pay CGT. Instead, you would have to pay Income Tax if you are a partner or sole trader; or Corporation Tax if you have a limited company.
Q: What CGT needs to be paid on items and property that I have inherited?
A: You only pay CGT on gains that have arisen since it has been inherited.
Advice about Capital Gains Tax
Capital Gains Tax can be difficult to get your head around. If you have a question and would like to speak to someone who can give you answers and explain specific reasons to you in plain English, please feel free to call Bray & Bray.
We have three main offices across Leicestershire so feel free to phone or pop in and talk to our solicitors at your local office.