Tax On Selling Property- Do You Have To Pay Any?

Before I begin, let me make the primary message quick and painful- YES, you may be subject to tax when selling your own property.

Avoiding costs and expenditures when dealing with property is like trying to avoid bloodshed when going into battle with a hungry lion. Unfortunately, I imagine the pain of feeling an adult set of claws rip through flesh only to be a fragment of the pain felt when digesting the tax implications with property.

Anyone involved with property will feel the wrath of the taxman in one way or another. Although tax is inescapable, there are ways to significantly reduce costs. A financial specialist can give you a comprehensive guide on how to reduce tax payments to a more acceptable level (if there is such a level).

Selling your main home

If you’re selling a property that is your main home, you won’t be liable to make tax payments. However, there are certain conditions that must be complied with in order to make the cut:

  • You personally purchased it.
  • Any expenditure made on the property was primarily for the use of the home rather than with a view to make a profit.
  • the property was your only home throughout the period you owned it (ignoring the last three years of ownership)
  • you did actually use it as your home all the time that you owned it and, throughout that period, you did not use it for any purpose other than as a home for yourself, your family and no more than one lodger
  • the garden and area of grounds sold with it does not exceed 5,000 square metres (about one and a quarter acres) including the site of the house

Tax on property that’s not your main home

This is when Capital Gains Tax (CGT) kicks in. Any profit you make from selling a property which is beyond your main home will be considered as “income”, consequently will be qualified for income tax.

Similarly to other forms of tax, the amount of CGT you pay depends on your overall income. At the end of the tax year, any gains you made are added to your taxable income.

For up to date tax rates, go to the HM Revenue & Customs website.

What Expenses Can I Claim When I Sell a Property?

There are ways of reducing tax costs when selling property. I’m no expert, but for that, there are the Tax and Trust Specialists, as already mentioned. The area of property taxation is a highly specialised one. I’m sure the experts know all sorts of tricks, and dare I say “loopholes”

However, here are a few ways of reducing tax…

You can deduct your legal fees (for selling AND buying the property), the stamp duty you paid when you bought the property, estate agent’s commission and any other direct buying or selling costs.

If you have made ANY expenses on your property E.g extensions, new driveway etc. Provided that you can prove that you made those expenses, you can offset your expenses against your profit.

The difference between repairs (allowed as an income tax deduction) and improvements (allowed as a capital gains tax deduction) is an important one for any serious property investor.

4 Comments- Join The Conversation...

Guest Avatar
Victoria 19th September, 2007 @ 12:01

Interesting stuff. I definitely need to do more research in this area. This is interesting:

"Any expenditure made on the property was primarily for the use of the home rather than with a view to make a profit."

Well how much of a blag is that with the current fashion for everyone "investing" in their "properties" instead of living in their houses, with all the DIY shows and Location, Location, Location insisting all FTB buy to generate value and all that?

Ah well. Works in my favour right now I guess but its wearing from time to time that the harder you try to do something revenue generating with your existence, the harder the forces that be seem to push in the opposite direction!

Acerage restrictions on personal homes was news to me too - interesting stuff. Cheers for the article!

1
The Landlord Avatar
The Landlord 19th September, 2007 @ 12:08

Hey Victoria,

Yeah, that condition is kind of odd, because how do you determine whether an extension is a "use for the home" or added for profit? A Homeowner could stand in either corner.

I'm not sure how strict the taxman would be on issues like that (I can't imagine that strict). I'm assuming you just have to be careful how you word things.

2
Guest Avatar
Bill 19th January, 2011 @ 22:17

There are avenues for having a second home you actually also used as a main residence to be elected for as your main residence and hence reduce the tax burden. It is unlikely that the taxman would win an argument to say that a house that you actually occupied as your main or only residence had expenditure on it with a view to making a profit. I have however defended parties who HMRC were suggestign were in the property developing game with their main residences. So far 100% success.

3
Guest Avatar
darwin hash 1st June, 2016 @ 09:10

Useful post ! I was enlightened by the specifics . Does someone know where my business would be able to locate a sample NY DOS-1735-a example to use ?

4

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