How Do I Avoid Paying Taxes When I Sell My House

Selling your house is an expensive process. And we all want to keep our expenses down as much as possible. But taxes are some of those seemingly unavoidable fees that can drive your costs up more than you realise. The main form of tax on a property is known as Capital Gains Tax (CGT).

What Is Capital Gains Tax?

This is tax on the profit when you sell something that has increased in value. In other words, it is the gain that’s taxed as opposed to the money you receive. It is assumed that the money used to purchase the “asset” was already subject to taxation, so the government taxes the difference after the sale. For example, if you bought something for £100,000 and sold it for £150,000 the profit is £50,000 and the government’s CGT applies to the £50,000.

How Do I Avoid Paying Capital Gains Tax On A Property Sale?

There are a few scenarios that can help you avoid CGT on a property sale:

The House Being Sold Should Be The Primary Residence And The Only Home That The Resident Has.

The home the resident is selling should have been the primary home for the entire time they owned it, and should not have let part of it out to other people. The only time this doesn’t apply is there is a single lodger in the property.

Owners should not use part of the home for business purposes.

As more people are beginning to work from home or start their own business, this can prove difficult to sidestep. If a person lists their home address as their business address and the government has a record of this, CGT will have to be paid upon selling the house.

The Entire Property Must Be Less Than 5,000 Square Metres.

This also includes the grounds as well as the buildings. Therefore, people living in the countryside or own substantial land could be subject to CGT. A way around this is to sell the land separately from the building.

Homeowners need to demonstrate they didn’t buy the property to make a gain.

Ideally, if you live in one property and have declared it as your primary residence, this won’t be an issue. People who “flip” homes, and purchase a home as a fixer-upper or an investment will likely have to pay CGT.

If you meet the above criteria you will automatically receive a tax break called Private Residence Relief.

Avoiding Capital Gains Tax On An Inherited Property

If someone inherits a property, usually, the individual does not want to keep it. If they sell the home right away, they may not be subject to CGT.

Avoiding Capital Gains Tax On A Foreign Property

As the UK does not require CGT if a property is an individual’s primary residence, it may prove more difficult if there is an additional property. If the resident declares their international home is their primary residence, CGT can be bypassed. But the resident needs to declare that the foreign home is a primary residence within two years of purchasing the property. But if the resident decides to sell both their foreign property and UK-based property in the same year, this can cause problems.