Capital Gains Tax (CGT) is easy to overlook as it isn’t normally a regular occurrence for most people, like income or profits from a business are. This type of tax is payable on the difference in value between the acquisition or purchase price of an asset, and its disposal or sale price.
As more of us get involved in activities such as developing or letting residential or commercial property, or dealing in cryptocurrencies, both of which are subject to Capital Gains Tax, it’s important to understand when we might fall within CGT rules.
Our introductory guide The Basics of Capital Gains Tax looks at how CGT works with a range of assets. In this article we’ll focus on what it means for property.
We cover this in our CGT guide, but it’s a crucial point to make.
Money doesn’t actually need to change hands in order to trigger Capital Gains Tax.
In other words, you might not sell an asset, but you might still need to think about CGT. This is because CGT applies to the disposal of an asset, not just the sale.
So, what does disposal of an asset look like? Well, you might transfer an asset to a third party that isn’t a spouse, civil partner, or charity, for instance. To calculate the ‘gain’ in that situation, you’ll use the market value at the time.
Will I pay Capital Gains Tax if I inherit something?
If you acquire an asset as part of an inheritance this will not normally be subject to Capital Gains Tax, because it falls within Inheritance Tax rules. However, if you dispose of all or part of the asset after you inherit it, this may be a chargeable gain.
When will I pay Capital Gains Tax on property?
Not all assets are subject to Capital Gains Tax. Those that are, are known as chargeable assets. It can apply to assets held for investment, such as very expensive paintings or jewellery, but in terms of property, this can apply to:
Property that isn’t your main home.
Your main home if you let all or part of it out (although this doesn’t include having a lodger), use it for a business, or if it’s very large (5,000 square metres or more).
Business assets, including commercial property.
Property accountancy services
Accounting for landlords and investors from £24.50 per month
How much Capital Gains Tax will I pay on property?
Other chargeable assets are subject to a different rate of CGT, but for property the rates are:
Type of Taxpayer
Rate of CGT on Gains from Residential Property
Higher rate taxpayer
Basic rate taxpayer
What information will I need to report for CGT?
In order to report a gain, you’ll need some key information to calculate it, including:
The amount you bought and disposed of the asset for. You must use the market value of the asset if it was transferred without payment, or if the disposal was significantly above or below market value.
Evidence of how you determine the market value. HMRC can challenge this and make their own assessment if they don’t agree with yours.
The dates of acquisition and disposal.
Any costs involved in the purchase or disposal, including legal fees, valuation costs, and agent’s fees.
The costs of any improvements or refurbishment.
Documentary evidence of all the above.
When should I report chargeable gains?
HMRC won’t automatically send you a bill for any chargeable gains. The responsibility to report a capital gain and pay tax on it, where appropriate, lies with the individual taxpayer. There can be hefty penalties for failing to report or pay tax on time.
Report the gain by 31st December in the tax year after the disposal
Pay the Capital Gains Tax due by the following 31st January
So, for example, a chargeable gain made in the 2023/24 tax year must be reported by 31st December 2024, and the tax paid by 31st January 2025.
If you aren’t registered for Self Assessment, you can report a chargeable gain using HMRC’s real-time online CGT Service. The deadlines are the same as for reporting and paying under Self Assessment.
Special rules for reporting the chargeable gains on residential property
The rules for reporting chargeable gains on the disposal of residential property are different to disposals of other assets.
You cannot report gains on residential property using the real-time CGT Service or Self Assessment.
You must report the gain within 60 days of disposal.
Failure to report the gain within 60 days may result in penalties and interest on the amount due.
If you made a chargeable disposal of residential property between 6th April and 26th October 2021 you had 30 days to report it. If you haven’t already done so you can’t report it via Self Assessment or the real-time CGT Service.