Whenever you sell an asset, the potential obligation to pay capital gains tax (CGT) is always a concern. Landlords selling houses should be aware of how this tax functions, some of the rules set out by the HMRC and a handful of exemptions which could prove to be quite useful when determining whether or not it is necessary to file. Let’s take a look at some of the principles behind capital gains tax in relation to a property sale.
When are Landlords Selling Houses Obliged to Pay CGT?
According to the official HMRC website, there are four types of properties which a landlord is responsible for. These are:
1. Buy-to-let properties
2. Business premises
3. Land
4. Inherited property
Having said this, there are some other factors to take into account. For example, we should note that the rate of GENERAL capital gains tax has dropped significantly since April 2016. This is separated into two brackets (depending upon whether or not the landlord is considered to be a “basic” or a “high rate” taxpayer). Let us take a look:
– Rates for basic taxpayers have dropped from 18% to 10%.
– High-rate taxpayers will be responsible for 20% as opposed to 28%.
However, the former figures (18% and 28%) STILL are valid in terms of a property sale. Landlords selling houses need to take this amount into account. The only time when this would (theoretically) not be the case is if the aggregate value of the house was no more than £6,000 pounds.
The capital gains tax associated with the sale of a London house is due by 31 January immediately following the tax year that was associated with the sale. This essentially means that landlords will have between 9 and 18 months to settle. However, it is critical to note that (now former) Chancellor Osbourne proposed that this tax will be liable within 30 days beginning in 2019.
Potential Exemptions to Capital Gains Obligations
As with most other categories of capital gains tax in the UK, there are exceptions for landlords selling houses. Gifts to a spouse or civil partner will not be liable to CGT. However, this does not apply if the pair were not living together for the relevant tax year. If the home can be proven to be a business asset, it might not be liable for capital gains tax and in many cases, the rates themselves could be lower. If the landlord owns a company which specialises in the sale of homes valued in excess of £2 million pounds, there are special rules which could apply. It is wise to visit www.gov.co.uk to learn more. There may be times when the house was occupied by a dependant relative. In such an instance, the landlord might not be required to pay the normal CGT rate. It is best to become familiar with the Private Residence Relief Scheme (form HS283) to learn more.
These are some of the most important concerns in regards to capital gains tax for landlords selling houses. It is always wise to visit the HMRC website, for there is a massive amount of further information available.
