Capital Gains Tax - What Is It and How Does It Affect Property Owners

Capital Gains Tax - What Is It and How Does It Affect Property Owners

Capital Gains Tax - What Is It and How Does It Affect Property Owners

Posted on Tuesday, May 3, 2022

Capital gains tax (CGT) can affect property owners when selling a home. Several factors influence whether a property owner must pay capital gains taxes after selling their property. Also, the capital gains tax rate applicable to the disposal of the property varies depending on the size of the gain and income of the property owner.

How does capital gains tax affect you if you are a property owner? How much will you be expected to pay if you sell a second home or buy-to-let property? This article explores how CGT impacts the amount of tax you pay on property gains.

What is Capital Gains Tax?

Capital gains tax is a levy property owners must pay when selling an asset that has increased in value. The level of CGT to pay depends on the appreciation in the property value, your level of income, and how the property was used. However, there are circumstances when CGT doesn’t apply.

How Much Capital Gains Tax Do Property Owners Pay?

The capital gains tax rate is charged at 18 per cent for standard taxpayers or 28 per cent for higher rate taxpayers. However, the tax you must pay is only on gains above your annual exempt amount — also called the tax-free allowance. The capital gains tax allowance from 2022 is £12,300.

It may be possible to reduce your CGT liability by deducting losses or claiming relief.

Because working out CGT depends on various factors, calculating it can be tricky. That is why it’s always best to consult with a tax expert or local estate agent who has expertise in capital gains tax.

The government’s website has up-to-date information on CGT annual allowance and tax rules regarding selling residential properties.

How Capital Gains Tax Affects Property Owners?

Capital gains tax only affects property owners who sell a second home, investment property, or if part of the home was used exclusively for business. Therefore, capital gains tax doesn’t affect you if you sell your main residence or your only home.

Additionally, suppose you inherit a property or sell a property that a dependent relative occupied. In that case, you will be exempt from taxes on the capital gains from that property.

How Capital Gains Tax Affects Buy-to-Let Property Owners?

For buy-to-let property owner in Bristol, the recent house price increases can significantly affect the CGT you may need to pay if you sell. Because the property is typically a second home or used for business purposes, you must pay the applicable tax rate. The amount you pay in tax depends on the amount the property has risen in value more than your annual exempt amount.

Here are some other scenarios when you may be liable to pay capital gains tax from the sale of a property:

  • You sub-let part of your home
  • You use a portion of your home exclusively for running a business
  • You own another house that HRMC would classify as a primary residence
  • You bought the property with the sole purpose of making a gain

How Capital Gains Tax Works

Calculating how much to pay in capital gains tax when selling your house can be challenging. Here is an example to show how CGT works.

Let’s say a property owner purchased a buy-to-let property and now decides to sell it. The purchase price was £145,000, and the owner spent £40,000 on renovations and building an extension. The house then sells for £230,000. Deducting legal expenses on the purchase and sale of the home (totalling £6,000), the taxable gain is £39,000.

How to Lower Your CGT Tax Bill

Here are a few ways to pay less CGT after selling a buy-to-let home or second home:

  • Deduct buying and selling costs: Keep receipts of all costs involved with improving your assets. Also, remember that estate agent’s fees and stamp duty lower your tax bill.
  • Include your spouse’s allowance: Married taxpayers double their tax-free personal allowance by sharing ownership with their spouse.
  • Careful tax planning: It may be possible to reduce your capital gains tax liability by selling during the next tax year if you’ve used part or all of your CGT allowance.


Are you thinking of selling your home in Bristol? If so, call our team at Hydes of Bristol today and speak to a member of our team. We can give you professional advice on selling your property.