Selling house tax query

[MN224]

I have another property which I rent out but want to sell. I will make about £25000. Will this be taxed as capital gains? I am putting this money directly into my own mortgage as a lump sum payment. Thanks.

The £25k is profit? Have you taken out all expenses in terms of selling (estate agent fees, solicitor etc)? Any improvements that could also be deducted? Whatever your gain is, yes you will be taxed on that. It doesn’t matter what you intend to do with the money. You do have a annual exempt amount of £3000. If you own the property with a spouse, for example, you can combine that to £6000 (or rather, each use the deduction on each share). Then the amount of tax you pay depends on your tax rate; basic rate tax payers it’s 18%, higher it’s 24%. You MUST report and pay this gain within 60 days of the sale, not when you normally file your taxes.

You can also deduct any legal fees incurred when you bought the property and deductions if you ever lived there. There is a very good calculator on the Gov. website

Stamp duty, estate agents fees, home improvements. I’ll be surprised if you have to pay much tax on £25k (unless you have deducted everything already.

Assuming
You have never lived in the property
and
the £25k is profit only ( after all expenses for the purchase and sale )

Then yes you will pay capital gains tax

You can calculate how much you will pay in tax (rates 18% and 28%)
by using the The Govn website online calculator

If you lived in the property at any time you get private residence relief for that period of occupation ( so no tax on that period)
plus
the last nine months of ownership even if you aren’t living in it.

If you never lived there you do not get the last nine months free of tax.

Home improvements aren’t that relevant unless extensions or building work done recently to sell

Edit

Higher rate Tax at 24%. Not 28%

Yes you have to pay CGT on the profit made on the house from when you bought it to when you sold it, as it is not your primary residence.

Is it correct that profit is only what is gained after
the initial purchase price?

As far as I know, yes. A flat I sold I had to pay CGT on the amount the flat had increased in value from when it was bought. It wasn’t a primary residence & had never been rented out.

I did this from Australia for a property in the UK, so it had to be snail mail. Possibly it's all on line from the UK.
The help sheets for completing the form are excellent. Good plain English.
Because of the time frame for submitting and paying the tax, and having to use hard copy, I had everything ready to go bar the signature and date, waited for the money to hit my account and dropped it in to Australia Post the same day.

Sorted.

You need to be able to provide evidence of the original price of the house and of the sale price. Also land title. HMRC are very keen on signs of underselling.

I made £35000 on a flat in 2021. By the time I'd taken all my expenses off for selling and improvements I made there was no CGT to pay. So £25000 is the most you'd pay tax on (less £3000 allowance. )

Yes. That's correct

Yes, if not main residence then have to pay CGT on profit. Had same with late fathers house, his funeral was day before 1st lockdown and the house sat untouched for 3 years. We had to pay CGT on how much it rose in value in those 3 years.

Your solicitor for the sale will have to make a report to HMRC. Get your finances for the purchase/sale/profit typed up and share them with solicitor.

How would they know the value increase in those three years if you didn’t haven it valued initially?

When you complete the IHT form, the value of the house has to be stated. It is the value from the date the owner died. HMRC will accept the valuation (or not) and send you letter saying so. This is what you use as the baseline for calculating gain or loss for CGT. It's an important letter, and the correspondence is assigned an individual code.

I've done this.

I should have said I was executor of a will when I did this. It's not difficult.

I did this with my old house, and made about the same. You have to ensure you add in allll expenses, it's worth reading up on what counts as an expenses. Definitely take off the cost of the estate agent and any legal fees but also "improvement" costs (not decorating but larger changes like an extension but a new kitchen, bathroom, windows, rewiring, changing plumbing etc). Just make sure you have any paperwork or receipts to hand in some way.
So you need to
Take your purchase price (let's call it 300 000)
Take your sale price (let's call it 325 000)
Difference is £25 000
Take off estate agent fees and legal fees (let's call that 5000)
Any improvement works (maybe 5000 as a hypothetical figure)
So actual amount for consideration is 15 000, you'll then get £3000 allowance that's tax free.
So you'd then actually pay the rate on £12 000 which you pay whatever the CGT rate is for your tax band.
The key is to look at all and any improvements you've made - you might be surprised (most people have had a boiler replaced, a new kitchen or bathroom installed etc etc )

You can employ a surveyor to do something called a Red Book Valuation, a valuation on what the property was worth years ago.

Thank you - I had no idea!

Probate would have required a valuation
CGTax is taxed on the difference between sold price and Probate valuation ( after cost deductions)

I have a house I rent out too (previously the family home) and I hope to sell it when I retire. I'm currently a higher rate tax payer, but won't be when I retire - am I best to wait til I've retired to sell so I'll pay less inheritance tax? Or will HMRC penalise me in some way as seems to be their wont?!?

I have just sold my rental property.
Yes you will have to pay CGT on the profit youve made between buying and selling. (It’s effing bunce for the Govt just like Stamp Duty.)
You have 60 days from completion date to file.

Keep a copy of your Completion Statement handy bc HMRC will need to see it.

If you dont pay in time there will be fines.

If you have ever lived in the house you might pay less.

It was worth it to me to pay my accountant to do my CGT. It was more complicated than I thought it would be. He took the weight off my shoulders and only charged me £260 inc vat to get it done. Worth every penny.

But it’s incredibly easy to do on the online Govn website
which we have done several times

The most difficult thing is finding all the costs which you have to do anyway and give to the accountant