Capital Gains Tax explained

Andrew Stant, Senior Partner at Johnson Murkett & Hurst of Ashby de la Zouch provides advice on all aspects of property tax and here, explains the basics about Capital Gains Tax:

"Following a period of letting, thoughts may turn to selling, so what is the tax position?

Capital Gains Tax is chargeable on the difference between the sale price (after deducting legal and agent’s fees) and the original cost. There is then a further deduction of the annual exemption, (currently £11,300; joint owners each have an exemption) and the remaining gain is taxed at either 18% or 28% depending upon what rate of income tax is paid by the taxpayer.

The exemption is offset against all gains in a year, so if you are planning to dispose of a property and shares, for example, you may wish to consider the timing of those sales to make the most efficient use of the exemption.

Further reliefs are available if the property was originally the principal private residence (PPR) of the taxpayer. The years of ownership are split between those occupied as the PPR and those when the house was rented out, so that only the proportion of the gain arising during the rented period is taxable.

The tax free proportion is also increased for tax purposes by 18 months and another relief known as ‘lettings relief’ may further extend the non chargeable private proportion of the gain."