When you purchase a home, you are probably extremely excited about the purchase and what it means for your life. You have got a new place to live, eat, sleep, and spend time with your family. Eventually having to sell that new home and the requirements that come with that process are most likely far from your mind.
Whenever the time does come to sell, making a profit is always one the most exciting and interesting part of owning your home. Most people go into buying a home thinking that whenever they do sell the property, they will make at least a small profit. Many people purchase homes as an investment. The main requirement that they need is a comfortable place to live, but a future profit that could come when later selling the home is the icing on the cake.
In this article, the headings are:
But many people are not initially aware of the taxes that may need to be paid on the profit of a home. There are two main types of taxes that may need to be paid:
Capital Gains Tax: This is the tax you will pay on any asset you sell for a profit and higher than the original price. This could be furniture and many other items that you own and then decide to sell. In this case, we are talking about the asset of your home.
Inheritance Tax: When someone passes away and their property and assets are inherited, tax may need to be paid on the property. This depends on the value of the estate.
In this article, we will focus on Capital Gains Tax
Capital Gains Tax is an amount you have to pay if you sell something for more than you purchased it for. Whatever profit you gained from the sale is eligible for CGT. Items such as furniture, collectible items, or stocks can be targeted with CGT if you sold them for higher than what they were purchased for.
If you purchase a home for £100,000 and sell it for £125,000, you make a net profit of £25,000. That £25,000 is what you would owe Capital Gains Tax on. This tax is based on your income from the previous year and you do not have to pay the tax until you sell the home. The tax accumulates while you own the residence.
There are some exemptions from Capital Gains Tax. If you have lived in your home for more than two years, you can qualify for Private Residence Relief. If you own multiple homes, only one can qualify for Private Residence Relief. Married couples who file their taxes together can only claim one home for Private Residence Relief. If you rented the home out while you owned it, you will not be eligible for PRF. If even a single room of the home was used for business purposes, you will have to pay Capital Gains Tax.
There are various ways PRF can come into play or reasons you are not required to pay CGT:
Capital Gains Tax is based on your income. The higher your current or previous income was, the higher the Capital Gains Tax you will have to pay. This can vary based on your situation, but CGT is most often based on the income of the seller. If you typically have a higher rate of taxes that you have to pay each year, you might end up paying 28% on the profit of your home. If you make an average amount of income and pay a standard rate on your taxes each year, you could pay 18% on the profit made from the sale of your home.
Keeping these sorts of fees and taxes in mind is important when trying to sell your home. Many homeowners are exempt from CGT because they purchase their homes to live on the property themselves. Also keep in mind stamp duty.
If you are trying to move through the sale of your home quickly to gauge what sort of CGT or other taxes you will need to pay, Quick Property Buyer can help you move through the process. A cash property buyer is an ideal option if you are attempting a quick sale of your home. We will make an offer on your home and what we offer is what you will receive. All legal fees are included in our service.