How To Reduce Your CGT Liability

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When you go to sell your home, there might be a secret bogeyman under your bed that you haven’t realised is even there yet. Capital Gains Tax, or CGT, can scare a lot of people as they move to sell their homes, but it doesn’t have to be scary. Instead, here are some of the best ways to ensure that your UK capital gains tax doesn’t jump out and surprise you and that you always know how much you’ll need to pay in taxes the year you sell your home. Many homeowners will never have to pay capital gains taxes, though, and they know the ins and outs of avoiding them. If you only own one property, the chances are that you’ll never have to pay a cent of capital gains taxes throughout your life. If you’re a landlord or rent various properties to people, your tax situation is more complicated. Thousands of people sell their homes every year, and they all know these quick tips to reduce your capital gains tax liability.

What Is Capital Gains Tax in the UK?

You might not have heard of capital gains tax in this modern world. Certainly, if you’ve never sold a house in the UK before, you won’t have heard about UK tax systems. However, the UK capital gains tax is just something that you have to pay when you make a lot of money in one transaction. If you sold a lot of stocks or a painting, you’d also have to pay capital gains tax on those sales. These sales are called capital gains because you’re earning a lot of money. Since you make a lot of money when you sell your home, capital gains on property are something that many people have to pay. Even if you remove an asset from your wallet by giving it away- even just to a friend- you need to pay capital gains tax to get rid of it. The capital gains tax rate won’t affect you very much, but it is something that you need to pay! The capital gain tax rate in the UK depends on how much money you make per year, and the tax bracket that every other kind of tax you pay would fall under. Most people in the UK experience taxes anywhere from 10 to 18 per cent of their money, which means that 10 to 18 per cent of their profits will be taxed under capital gains tax. If the amount of normal taxes that you pay increases, chances are that you’ll also see an increase in your CGT rates.

How Do I Avoid Capital Gains Tax?

A house can make a huge impact on your tax bracket because you’ve suddenly earned hundreds of thousands more pounds than you would in the average year. While this won’t affect your income taxes, it will mean that you need to pay property capital gains tax. That is, you might have to pay capital gains tax. Many homeowners might be able to dodge some or all of their capital gains tax. For instance, if you’ve just sold your primary residence, you don’t need to pay capital gains tax on that property! Most homeowners only own one house at a time, which means that capital gains tax may never even affect them. However, this comes with stipulations. The government mandates that due to some variations in what counts as a ‘primary residence,’ some homeowners could have to pay capital gains tax. If your property has lots of buildings on it, is very large, is partially business premises, is being flipped, or you already own another home that could be considered your primary residence, you’ll have to pay capital gains taxes on your recently-sold estate. However, if you happen to be gifting the property to a spouse or partner, you won’t have to pay capital gains taxes on any of it. Similarly, if you will property to someone, they won’t have to pay capital gains taxes after they’ve inherited it. Even if you’re just selling a property owned by a deceased, dependent relative, you may not qualify for capital gains tax. It’s not complicated to get rid of capital gains tax, and it’s even easier when you realise that the average homeowner won’t have to pay it. As long as you only own one house, the chances are that you’ll never have to encounter this harrowing piece of UK legislature.

Does A Buy To Let Property Ever Qualify For Capital Gain Tax Relief?

Many people in the UK happen to be landlords, who purchase property just to rent it back out to other people. This is known as a ‘buy to let’ property and works differently under UK tax law. If your buy-to-let property has risen in value since you bought it, chances are that you’ll have to pay taxes on it when you sell. However, private residence relief does exist and may alter the state of your taxes. Private residence relief means that ordinary homeowners, who only own one property, don’t have to pay capital gains taxes. If a property that you’re selling was your primary residence nine or fewer months ago, you qualify for capital gains tax relief. As long as you’ve lived in the house as your primary residence within the last nine months, you won’t have to pay capital gains tax on your sale. If you’ve lived in the property at the same time as your tenants, you’re even more likely to be approved for aid when you go to sell.

How Much Is Capital Gains Tax in the UK Going To Cost Me?

The amount of capital gains taxes you pay in the UK is going to change based on your tax bracket. There are dozens of CGT calculators on the internet, but it doesn’t have to be a difficult sum to figure out what you might owe in capital gains tax. Standard rate taxpayers will need to pay 18% of their profits back to the government, so if you make £500,000 in profit, you’ll have to pay £90,000 of that back to the government in capital gains tax. If the amount of money you’ve made will cause your income to stretch up into the above-average tax category, though, you may see yourself paying as much as 28% of your profits. This means you made more money off of the sale, though, so it won’t be that much damage in comparison. If you earned £500,000 in profit on your sale, you’d be expected to pay £140,000 in taxes at a 28% capital gains tax rate.

When Is CGT Due?

Capital Gains Tax is easy to track. You have six months to declare your profits and your taxes, and then you can easily take care of what you need to pay. This rule was instituted after October 2021, so it’s relatively new. If you’ve previously sold property and are surprised to find out that the rules changed, make sure you check out more information online to ensure that the rest of your sale went legally and smoothly. Don’t panic about your capital gains tax instead, just make sure that you pay it on time and you’ll be good to go.

How Do I Pay CGT?

If you do qualify to pay capital gains tax, it might be useful to know how to do it! Paying capital gains tax is easily completed online or through a certified public accountant. Even if you report your earnings in your yearly tax report, that means that you’ve successfully paid your capital gains tax. Even when it seems scary, most things are easily accomplished online, and your taxes are one of them! Paying your capital gains tax doesn’t have to be something difficult. Instead, the government has set up an easy payment portal through their official website, and you can pay your capital gains taxes online.

Reducing Your CGT Liability

When you go to sell your home, it can be difficult to know where you stand with capital gains tax. Instead of panicking, consider several options for your payments. Is this your only property, and have you lived there as your primary residence within the last nine months? If so, you probably don’t even have to worry about capital gains tax. Likewise, if you’re in the average tax category for the UK, you won’t have to pay that much of your profits before you’re off the hook. Most people never need to worry about their capital gains taxes, and you can be one of those people throughout their life! With this quick explanation of capital gains taxes and how you can combat them, you can ensure that you make as much money as possible from your recent UK home sale. Even when you have to pay your capital gains tax, it will cost you less than half of the expected profits from the sale. There’s no reason to fear your capital gains taxes—instead, use your new knowledge to prevent yourself from being suckered into paying more than you need. Isn’t that easy?

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