Selling a house is no straightforward task. Between valuing the property to negotiating a deal and seeing it through, there are a lot of steps involved. And even when the sale finally closes, you still have some admin work to do in order to settle your tax obligations with HMRC.
But what taxes do you pay when selling a house? Keep reading for everything you need to know about property taxes when selling a home.
Capital gains tax when selling your home
The good news is that if you’re selling your home, you won’t usually need to pay any capital gains tax (CGT). The only times you may need to pay CGT on your main home are when:
- you haven’t lived in the property the entire time you’ve owned it
- you’ve rented part or all of the property (excluding lodgers)
- you’ve used part of the house exclusively for business
- the total grounds of the house are more than 5,000 square metres.
What about properties that aren’t your main home?
CGT is a tax applied to the profit an individual makes when selling an asset that has increased in value. For example, if you purchased a house for £200,000 and sold it later for £300,000, the profit (or capital gain) would be £100,000, on which CGT may be applied.
Every tax year, you have a CGT allowance to use if you dispose of a high-value asset, in this case, a property. For the 2023/24 tax year, your CGT allowance is £6,000. However, this will drop to £3,000 from April 2024.
The amount you pay will depend on which tax band the money from your property purchase falls into on top of your regular income. So, any profit that is within the basic rate band for income tax will be charged at 18%; the rest that exceeds the band will be taxed at 28%.
You must report the sale of the house and pay any CGT within 60 days of the deal’s closing. If you’re not a UK resident, you must report the disposal of a property even if you:
- have no tax to pay on the disposal
- have made a loss on the disposal
- are registered for self-assessment.
Inheritance tax when inheriting a home
If you inherit a house from a family member or friend you might need to pay CGT as above if you later dispose of the property. However, CGT would only apply to any gain in value over and above the probate value.
Before this, though, the value of the property (minus any debts) would be included in the value of the deceased’s estate and may be subject to inheritance tax.
Inheritance tax is currently set at 40% on anything over the value of £325,000 (the threshold known as the ‘nil-rate band’).
Another threshold, known as the residence nil-rate band, can also apply on top of this at £175,000 when passing on a family home under the value of £2 million to children or grandchildren.
These thresholds can be shared between spouses and civil partners, which means in many cases, family homes can benefit from a total tax-free threshold of £1 million.
The executor of the estate has six months to report and pay any inheritance tax after the person’s death.
Get in touch
Selling a property can be a drawn-out process, even before you get around to reporting it to HMRC. By hiring an accountant to help report your gains, you’re cutting out a lot of hassle.
If you need help reporting any capital gains from selling a house, we’ll be happy to help. Get in touch.