Capital Gains Tax in the Housing Market

The housing market has been complicated and competitive since the end of 2019. There has been a staggering increase in house prices over the past couple of years, and we can expect to see further increase as we move into 2022.

As a consequence, buy-to-let landlords have the capability to sell their properties for higher prices. However, higher selling prices does lead to higher Capital Gains Tax.

How Much Capital Gains Tax Will I Pay?

Capital Gains Tax depends on several aspects:

  • The profit made from selling the property
  • Which tax bracket the landlord falls into
  • What your marital status is
  • Whether you are eligible for any deductions or tax relief

Those in the basic-rate tax bracket will pay 18% Capital Gains, whilst higher or additional rate tax payers will be liable for 28% Capital Gains Tax on their property sale. In order to find out which tax bracket you fall into, you must add your capital gains to your taxable income.

The current tax-free allowance is £12,300, however if you own a property as a married couple you can combine your allowances for a total tax-free allowance of £24,600.

How do Increasing Property Prices Impact This?

Though increased property prices are a huge benefit to buy-to-let property owners as higher profits will be made, it's important to take into consideration what this means when it comes to tax.

The more a property sells for, the more Capital Gains Tax will need to be paid.

Another slight downfall of increased property prices is that the profit you make from selling your property could push you into a higher tax bracket, thus increasing the percentage of tax you must pay, as well as the amount.

Capital Gains Tax Deductions

There are some deductions that will be considered when determining your Capital Gains Tax. These include:

  • Stamp Duty
  • Conveyancing costs
  • Costs for selling the property, e.g. Solicitor and estate agent fees
  • Costs of large home improvements, e.g. an extension or conversion

The cost of upkeeping the property and interest on mortgage payments etc is not deducted.

How can GMP Accountants Help You?

If you own a buy-to-let property and want to take advantage of the current high selling prices, ensuring you understand how Capital Gains Tax works and have reports of all financials that may be included in deductions is vital.

Selling a property can be stressful, and understanding the financial side of things can add in complications, especially if you haven't got experience with taxes. That's where we step in here at GMP Accountants. We can take control of your finances and support and advise you during the sale to ensure you receive the correct amount of money after Capital Gains Tax. Get in touch with us today.

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