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

Let’s make the primary answer quick and potentially painful…

YES, you’ll almost certainly be subject to tax if you sell a property that was purchased for investment purposes e.g. a rental property.

NO, you probably won’t be subject to tax if you sell your main residential home.

But let’s look into the details…

Selling your main residential home

If you’re selling a property that is your main home, you won’t be liable to pay tax on the money you receive from it, even if you come out the other end with a handsome profit. 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 (i.e. BTL/rental property)

Anyone involved with property as a profession will inevitably feel the wrath of the taxman in one way or another.

Any profits made from selling a property that is not your main residential home will be considered as “income”, and therefore subject to Capital Gains Tax (CGT).

Similarly to other forms of tax, the amount of CGT you pay depends on your overall income and the tax bracket you fall into. At the end of the tax year, any gains accumulated from investment property should be added to your taxable income.

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

Although, while tax is inescapable, there are ways to significantly reduce your tax liability. I’m no expert, and the area of property taxation can be a highly specialised one, so if you want to maximise profits, you should seek professional advice. I’m sure the experts know all kinds of tricks and loopholes that you can get your fingers dirty with.

4 Join the Conversation...

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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.

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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.

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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 ?

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