Property Focus: Capital Gains Tax
9 March 2022
The average Northern Ireland house price has risen by 13.1% on this time last year to a value of £173,911 in February 2022, according to the Halifax index released on 7 March 2022. Supply problems are continuing to push local property prices higher as more people than ever seek to move home.
Vendors, particularly those selling second homes or buy-to-let investors, should bear in mind the capital gains tax (CGT) liability on profits made from the sale. CGT is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that has increased in value. It is the gain you make that is taxed, not the amount of money you receive. For UK properties sold on or after 27 October 2021, the vendor will need to pay the tax owed within 60 days of the completion of the sale or disposal by submitting a ‘residential property return’ and making a payment on account to HMRC.
CGT is charged at 18% for standard rate taxpayers, and 28% for higher rate taxpayers. This is payable on any profit earned on the property minus the CGT allowance, currently £12,300. Couples who jointly own assets can combine this allowance, potentially allowing a gain of £24,600 without paying any tax.
HRMC allows vendors to deduct the following:
Both buying and selling costs.
Estate agent and legal fees plus any stamp duty paid when purchasing the rental property.
The cost of improvement works, including extensions but not maintenance costs such as decorating.
Vendors should also bear in mind that you may be entitled to claim Private-residence relief (PRR) for the time you lived at the property as your main residence, plus the last nine months of ownership. If you have also lived in your home at the same time as your tenants, you may qualify for Letting Relief on gains, further reducing your CGT liability.
Vendors can also use losses to reduce gains. Gains and losses realised in the same tax year must be offset against each other, which can reduce the amount of gain that is subject to tax. You do not have to report losses straight away; you can claim losses up to 4 years after the end of the tax year in which you disposed of the asset. Vendors cannot deduct costs involved with the upkeep of a property or mortgage interest.
CGT is a complicated subject, so make sure you seek professional tax advice. An adviser will make sure you are maximising all your tax reliefs, allowances and exemptions, explain your options, and advise on the best course of action for your individual circumstances.
If you are buying or selling your property, then contact Joshua or another member of our Residential Property team for a quotation and discussion of the legal process.