I'm a property expert that still remembers the days when having broadband was a selling point! My articles cover issues that homesellers face in the UK and answer the questions we're all asking. I've bought and sold properties and helped others do the same, so my writing comes from years of experience.
Read Full Bio >There are a number of matters to take into consideration when planning to sell your home. Your budget is among the most important of these. It’s vital to clearly determine the costs inherent in any property sale before going ahead.
As tax is payable on a range of profits and income types in the UK, many people understandably assume that a property transaction will incur some kind of duty. As a result, we are often asked “do you pay tax when selling your house?”.
However, the fact of the matter is that there is usually no tax to pay when you sell a property that is your primary residence.
In this guide, we explore the situations in which you may be required to pay tax when taking steps to sell property.
When Do You Pay Tax on a Property Sale?
Wondering what tax to pay when selling a house? The good news is that, in most cases, you won’t have to pay any at all!
However, there are particular instances where Capital Gains Tax and/or Income Tax may apply. Below, we’ll explain a little about the scenarios in which this may be the case.
Capital Gains Tax
Capital Gains Tax is a levy on the profits you make when selling or “disposing of” an “asset”. In this case, the asset in question would be your house.
Capital Gains Tax (CGT) is paid only if the property you are selling is not your “main residence”.
This is known as “private residence relief”, and it means that you will not need to pay Capital Gains Tax if you are selling the home in which you spend the majority of your time, and to which most of your correspondence and bills are directed.
It is possible to declare a particular property as your main residence through HMRC, although you can only nominate one property in this way at any one time.
If you plan to sell a property that is not your main residence, CGT will very likely apply if it has grown in value since you bought it.
You will also have to pay CGT if you sell an inherited or gifted second-home (that wasn’t given to you by a spouse or civil partner) as long as its value has grown since it came into your possession.
The tax is also payable when you sell a buy-to-let property that has increased in value.
Other Scenarios
There are further conditions under which Capital Gains Tax may apply, but these are particularly specific. You may be charged CGT if the property you are selling:
- Was purchased expressly for money-making – for example, if you are a property developer who makes a profit by “flipping houses”
- Incorporates land measuring 5000 square metres or more
- Has been sub-let (you will remain exempt from CGT if you have had one lodger, but no more than that)
- Is split-use (for example, if it has been set up to be part-residential and part business premises)
How Much CGT Will I Pay?
The amount you pay will be based on a percentage of the “gain” or profit you make. Usually, Capital Gains Tax payments are charged at 18%. However, for additional rate tax payers, they are charged at 28%.
It’s worth noting that there is a “tax-free allowance” when it comes to this levy. This means that you can avoid Capital Gain Tax on gains valued below £12,300 each year.
Spouses and civil partners may combine their allowances, which means that you may be able to double the tax-free gains you can receive.
Corporation Tax
If you are selling a property that is connected to a limited company that you run, you may be required to pay corporation tax.
For example, should you sell a home through a property development firm, should your company manage rental accommodation that you intend to put up for sale, this duty may apply.
Corporation tax is currently payable at 19% of any gain you make.
Stamp Duty Land Tax
This type of tax is only ever payable by the buyer of a property, not the seller. The only scenario in which you will find yourself paying SDLT is if you’ll be buying and selling property at the same time.
SDLT When Buying
You will be required to pay Stamp Duty when buying any property worth over £125,000 – unless you’re a first time buyer, in which case the threshold is £300,000.
It is important to complete an SDLT return when buying any property worth more than £40,000, even if there is no Stamp Duty to Pay.
SDLT is charged according as a percentage of the value of the property you are buying, following this system:
- For properties worth £125,000 or below, no SDLT is payable
- For properties worth £125,001 – £250,000, SDLT is payable at 2%
- For properties worth £250,001 – £925,000, SDLT is payable at 5%
- For properties worth £925,001 – £1,500,000, SDLT is payable at 10%
- For properties worth over over £1,500,000, SDLT is payable at 12%
If the property you are buying is to be a second home (not your “main residence”) or a buy-to-let, there will be an additional 3% surcharge.
How Do You Pay Tax On a House Sale
How do you pay taxes when selling a house? The CGT you owe must first be reported to HMRC. Once this is done, you can pay the amount directly online, via CHAPS or BACS transfer, or by posting a cheque to HM Revenue and Customs, Direct, BX5 5BD.
So, when do you pay taxes when selling a house? The current payment deadline for CGT is 60 days following the completion date of your sale.
If you run a small business that is liable for Corporation Tax, the tax on any sale can be paid directly online or over the phone, via CHAPS or BACS, via Direct Debit or using your online bank account.
This must be done within nine months plus one day following the accounting period during which the property was sold.
Other Expenses When Selling Property
As we have mentioned above, it is likely that you will have no tax to pay at all when selling your home.
However, if you are putting your home on the market using an estate agent, you will need to budget for a number of other expenses, including:
- Basic home improvements and decorating materials to get your property looking its best
- Estate agency fees for selling the property
- Solicitor fees
- The cost of hiring a removal firm
- Charges payable to an accredited domestic energy assessor for your Energy Performance Certificate
Any Questions
If you’ve been wondering “do I need to pay tax when I sell my home?”, we hope that this guide has enlightened you and helped you to determine which duties you will need to pay – if any at all.
Should you have any questions about ways to sell your home fast, get in touch with our team of experts today. We can undertake a free valuation and you make a no obligation cash offer. If you’re happy to accept, we can then help you to sell your home in as few as 7 – 21 days.
We’ll cover all legal fees when selling your property.
