What To Do After Selling a Residential Property (That’s Not Your Main Home)Understanding the implications of Capital Gains Tax on residential property is crucial for anyone who has sold a property that is not their main home.
So, you’ve sold a residential property in the UK – perhaps a buy-to-let, second home, or an inherited property. What now? Let’s keep it simple and walk you through what you need to do to stay on HMRC’s good side.
Why Does This Matter?
If the property isn’t your main home, there’s a good chance you might owe Capital Gains Tax on residential property (CGT). HMRC wants their share of any profit (called a “gain”) you’ve made from selling the property. Since 6 April 2020, they’ve tightened up the rules on how and when you need to report and pay this tax. Here’s the lowdown.
Step 1: Work Out If You Owe CGT
You only pay CGT if:
- The property wasn’t your main home (so no Private Residence Relief applies).
- You sold it for more than you originally paid (plus costs like legal fees, estate agent fees, and certain improvement costs).
Before you panic, remember:
- You get a tax-free allowance (currently £3,000 for most people in 2024/25).
- You only pay tax on the gain above this allowance.
For example: Keeping it simple, if you bought a second home for £200,000 and sold it for £300,000, your gain is £100,000. Subtract your £3,000 allowance, leaving you with £97,000 to potentially tax. Simple, right?
Step 2: Know the Deadline
This bit’s crucial for capital gains tax on residential property. Once the sale is completed (this is when the buyer pays and you hand over the keys):
- You have 60 days to report the sale to HMRC and pay any CGT due.
Don’t miss this deadline – HMRC charges penalties and interest for late filing or payment. Ouch.
Step 3: Create a Capital Gains Tax on UK Property Account
You need to set up a special account with HMRC to report the sale. Here’s how:
- Go to HMRC’s website and search for “Capital Gains Tax on UK property account.”
- Sign in with your Government Gateway ID (or create one if you don’t have it).
- Fill out the details about the property sale, including the date, sale price, costs, and any reliefs or allowances.
It’s pretty straightforward, but as accountants we have a separate portal set up and ready for capital gains tax on residential property, and we have the instructions to do this on your behalf.
Step 4: Pay Your CGT
HMRC will calculate the tax based on the info you provide. Payment can be made online through your account.
CGT rates for residential property sales (2024/25):
- 18% if you’re a basic-rate taxpayer.
- 28% if you’re a higher or additional-rate taxpayer.
Remember, CGT rates apply to the part of your gain that pushes you into a higher tax bracket. For example:
- If your taxable income is £45,000 and your gain is £20,000, part of that gain might fall into the higher-rate band.
Step 5: Check Your Self Assessment Return
If you’re already filing a Self Assessment tax return for capital gains tax on residential property, you’ll still need to report the property sale on it, even if you’ve already paid the CGT. Don’t worry – any payments you’ve made will be credited towards your overall tax bill.
What Happens If You Don’t Report It?
HMRC is cracking down on unreported property sales. If you miss the 60-day deadline or fail to report the sale altogether, you could face:
- A fixed penalty.
- Interest on the unpaid tax.
- Possible additional penalties if HMRC thinks you’ve deliberately avoided paying capital gains tax on residential property.
It’s not worth the risk, so make sure you tick this off your to-do list.
Need a Hand?
If this all feels like a bit much, don’t fret. We’re here to help you crunch the numbers, report to HMRC, and make sure everything is squared away. Drop us a message or book a chat with Vibrant Accountancy, and we’ll guide you through the Capital Gains Tax on residential property process with ease.
