You’d be forgiven for being a little confused when selling a second home or buy-to-let property lately. New rules that came into force in April 2020 meant you had to get your skates on to pay the Capital Gains Tax (CGT) on the profit of the sale within 30 days.
However, in the Autumn Budget this year, the Chancellor extended this period to 60 days where the completion of the sale happened after 27 October 2021, giving property sellers a little more breathing space before making the CGT payment. Confused? Let’s take a closer look.
Capital Gains Tax explained
CGT is the tax you pay on the money you gain when you sell a residential property that isn’t (or hasn’t always been) your main home. CGT may also be due when you dispose of a property by gifting it or transferring it to another person or if your buy-to-let property is the only one you own.
If you have multiple properties, one can be nominated as your main residence even if it isn’t the one you spend the most time at. You may take the view that it should be the one that will make the largest profit when sold. Note though, that it must factually be a residence, not a buy-to-let or other property you do not reside at, at least part time. You must nominate a main residence within two years of changing your number of residences.
Basic rate taxpayers pay 18% CGT and higher rate taxpayers pay 28% CGT on the sale of a residential property, which is more than the CGT owed on other assets. All taxpayers have an allowance of £12,300 before CGT is due. This allowance can be combined for couples who own assets jointly, but the allowance can’t be carried forward.
Once you’ve worked out the difference between the purchase and sale price of the property you’re disposing of, you can deduct the costs associated with buying and selling like stamp duty, broker fees and costs of improvements you’ve made to the property. Any losses incurred when selling other assets can also be carried forward and offset against your CGT.
The latest Budget announcement means that from 27 October you must pay the tax owed within 60 days of the completion of the sale. However, the 30 day payment deadline still applies to properties sold between 6 April 2020 and 26 October 2021. We always advise our clients to gather the necessary paperwork in advance of the sale so that you meet the deadline and can estimate the extent of the tax payable before completion.
The tax experts at CRM can help with all the nuances of Capital Gains Tax, so if you’re selling a second home or buy-to-let property, do get in touch to discuss your options and minimise your risks and stress. Call the team on 01865 379272.
