Money Problem: 'I'm selling my second home - how much capital gains tax do I need to pay?'

Sky News

2 days ago

Bob Jones writes in with this Money Problem...
We bought a house in 2014 for £128,500. We hope to sell it in the coming months for £220,000. How much capital gains tax would we need to pay? If we spend money tidying up the house, can we offset that against the tax? We have looked into this but it is all rather unclear.
There are quite a few unknowns here, and Bob did not leave his contact details for us to get in touch, so we have assumed that this property is a second home.
We spoke to Charlene Young, a senior pensions and savings expert at AJ Bell...
If the original purchase price is £128,500, selling your second home for £220,000 would gain you £91,500.
"Assuming the property is in your own name only, and you've made no other gains on other investments held outside an ISA or pension in the year, you can deduct your annual tax-free allowance for capital gains of £3,000 to get a taxable gain of £88,500," Young says.
If you own the property jointly, you'll need to work out the gain for your share.
Young says that gains from the sale of residential property that isn't your main home are taxed at 18% for basic rate taxpayers and 24% for higher rate taxpayers.
If your regular income and capital gains combined are below £50,270, you will be taxed at 18% bar the first £12,570 (your standard tax-free personal allowance).
Any amount above £50,270 will be taxed at 24%.
What costs can you deduct?
"The good news is that some costs can be deducted before you apply your CGT allowance," says Young.
The rules allow for the costs of buying, selling or improving your property. Typically, these will include stamp duty on the original purchase, estate agent and solicitor fees, plus the cost of any capital improvements like an extension or a loft conversion.
Maintenance costs, such as decorating and repairs due to wear and tear, are not normally allowable and you must keep complete records to prove the costs you do claim.
In your specific case, Bob... "Costs and capital improvements of £20,000 in total could lower your taxable gain to £68,500 and mean a lower tax bill," says Young.
Did you ever live in the property yourself?
You might benefit from tax relief for any periods of time you lived in the property yourself, thanks to something called Private Residence Relief.
"If you have genuinely lived in the house as your only or main residence at any point, you get relief for that time, plus the last nine months before sale, even if you weren't living there in those final months," says Young.
If we assume you owned the property for 11 years (132 months) before the sale completes, and you lived in it for two years between, up to 25% of the gain could qualify for relief.
This is calculated by adding nine months to the two years (33 months) and dividing by 132 months.
You can find a second home tax calculator and more information on private residence relief on the gov.uk website.
This feature is not intended as financial advice - the aim is to give an overview of the things you should think about.