The Legalities Involved With The Sale Of Property
If you have decided to sell your property, there are quite a few things you need to be aware of. Through this article, we try to bring to you all the important aspects of sale of property. You must know that if you are selling a property that is your main home, then you need not pay taxes on it, as long as some conditions are satisfied. If you are selling a property that is not your main home, you may have to pay what is termed as a "Capital Gains Tax".
When selling your main home
If you are selling a property that is your main home then you are not liable to pay taxes as long as:
- You had bought the property to be used primarily as a residence. You have made expenditure on the property and had bought it without any intent of making profit from the property.
- Other than the last 3 years of ownership, the property has been your only home as long as you have been the owner.
- All the time that you have owned the property, you have used it as a residence and have not used it for any other purpose. Residence means lodging for you, your family and one more lodger.
- The surrounding area with the property including the garden and grounds that you intend to sell are not more than 5000m2 or about one and a quarter of an acre.
If you are married or in a civil partnership without any separation, your spouse or partner and you can only have one residence between you in order to be exempt from paying taxes on your property. Even when you do not meet all these conditions, you could be exempt from paying taxes! There is something called the private residence relief that can save you here:
Who all qualify for the private residence relief?
If you have lived at your property and as long as you were the owner, it was your only home, you do not have to pay any capital gains tax (CGT) during the sale of the property. However, you may not qualify for the private residence relief on the entire property if:
- If the ground or garden of your property extend to an area of more than 0.5 hectare.
- You have numerous outbuildings
- Any part of the property has been used exclusively for business purposes
- If you bought the property in order to make a profit through early sale
You will be liable to pay the capital gains tax if you are the owner of more than one property or you have been using part of the property for business purposes, for instance you used one room for an office. If ever in doubt, you can check with your HMRC tax office for advice.
How much tax do I need to pay on property that was not my home?
When you sell a property and the amount you get is a profit in that it is more than what you had paid for it, it amounts to a chargeable gain. Even then, according to the tax year 2009-10, the first £10,100 is tax free. You must keep these in mind:
- When calculating the chargeable gains on your property, you can subtract costs of selling, buying and improvement of the property.
- If you have incurred losses on the property, you can set the losses off other chargeable gains you may have made.
- If you live with your partner, you are able to transfer the property to your spouse or civil partner without any CGT due. However, if you decide to sell it or give it cheaply to anybody else including your children, you may have to pay the CGT.
What is the required paperwork for sale of property?
The HMRC or HM Revenue & Customs advocates that you are in possession of the following documents and information that is related to the property:
- Any documents that are related to the sale or purchase, exchange or lease of the property
- Documents that contain details of properties that you have acquired but may not have bought yourself, for instance, inherited properties or a gift
- Any property details that you may have gifted or put into a trust
- Copies of any valuation that you considered while calculating your loss or gain
- Invoices, bills and other evidence of records of payments like a bank statement or check stub for any costs you may claim regarding the sale, improvement or purchase of a property
- It is also advised to keep all correspondence with buyers leading up to the actual sale of property
With reading this article, you are aware of all the necessary documentation you must keep and whether or not sale of property will attract any taxes. The private residence relief and capital gains tax are also important aspects to consider and use to your advantage when you finally decide on the sale of property.
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