Capital Gains Tax (CGT) is a tax payable when you sell a property or other asset that has increased in value since you bought it. This tax applies to both residential and non-residential property and is complicated too, so it's important to understand the rules of CGT before making any decisions.
In general, if you make a profit on the sale of property, you will be liable for CGT and will need to pay it to HMRC. The amount of CGT you owe is calculated as a percentage of the capital gains made on the sale. For 2021/22, this rate is 28% on the residential property and 20% for all other types of properties.
Capital Gains Tax Allowances on Property in 2023
The annual CGT allowance for 2021/22 is £12,300 per person and this means that you won’t have to pay any CGT on the first £12,300 of capital gains made. Any gains above this amount will be taxable at 28% or 20%. You can also offset any losses against your taxable gain in the same tax year.
For the 2022/23 tax year, the capital gains allowance has been confirmed to remain at £12,300 per person, meaning you won’t need to pay any CGT on the first £12,300 of capital gains made.
Using a Capital Gains Tax Calculator
When calculating your capital gains tax liability, it’s important to take into account any deductions you may be entitled to claim. To do this quickly and accurately, many people choose to use a capital gains calculator such as the one available on Debitam. This calculator takes all of the relevant information about your property sale and calculates the amount of CGT you are liable to pay.
Will CGT go up in 2023?
At the moment, it is not known whether or not there will be any changes to the capital gains tax rate in 2023. What we do know is that the capital gains allowance of £12,300 per person will remain the same for 2022/23. Any changes to the rate of CGT will be announced in due course, so it’s important to stay up-to-date with any updates from HMRC.
Changes on CGT on UK Property Paper Return
HMRC has announced some important changes on CGT on UK property to make life easier for the property owners. Paper returns can only be made under certain circumstances such as when the disposal forms part of an insolvency or deceased estate. The new rules mean that in other cases, you must use a digital tax return.
As part of your fast-approaching self-assessment tax return deadline on 31 January, HMRC also noted that property owners self-employed now have the option to make amendments before submitting their self-assessment tax return. The initial overpayment will automatically counteract other self-assessment charges.
Oversea UK Property Owners
With just two years to go, UK property owners based overseas must act fast and register their holdings before the 31 January 2023 deadline. By providing information on beneficial owners as well as any relevant trusts when registering, entities can help ensure they avoid unnecessary penalties in the future. Now is the time to get one step ahead of this looming regulation.
How long do you have to keep a property to avoid capital gains tax?
In general, you must hold a property for at least 18 months before selling it to avoid capital gains tax. This is known as the ‘bed and breakfasting’ rule and was introduced by HMRC in order to discourage the frequent buying and selling of property for profit.
If you sell a property that you have owned for less than one year, you will be liable for capital gains tax on the profits made. However, if you are a higher-rate taxpayer and have owned the property for more than 18 months then the effective rate of CGT is reduced from 28% (or 20%) to 18% or 10%.
Conclusion
Capital Gains Tax is an important tax to understand if you own property and are considering selling it. Knowing the capital gains allowance for a given tax year can help you to plan ahead and understand the potential tax liability. A capital gains calculator may be a useful tool for quickly assessing your tax liabilities on a property sale. Additionally, understanding the ‘bed and breakfasting’ rule may help you to avoid CGT by holding onto a property for longer than one year.
