At the time of writing, the British tax codes span more than 17,000 pages. An answer to any question on tax must, therefore, be considered to be just the start of a longer and more detailed discussion, but in an effort to begin to answer this question we must first qualify the facts.

You see, at present, if you own only one residential property in the UK and you bought it yourself as your main residence then the law is fairly clear. When you sell it, any profit you might make due to a capital gain is not liable to tax. It could be argued that this is one reason why the last forty years has seen a huge rise in house prices as equity has been continually rolled back into the market and geared up with readily available debt, but that is for another time.

In theory then, someone that moves from home to home, buying, refurbishing and then selling at a profit can potentially make serial capital gains from improving their home and realising the value through a sale. Of course, the taxman is not keen on losing revenue, so if he can establish a business revenue you might have to start thinking again about your activities. Perhaps recent hikes in Stamp Duty Land Tax are one measure introduced to discourage such activity? Certainly anyone buying a new home over £500,000 is going to think twice before moving again anytime soon when they have just paid £20,000+ in Stamp Duty Land Tax and is going to have to pay it again on their next purchase.

But the question of who has to pay tax when selling a home becomes more complicated when other factors come into play. For example;

  • Was the home inherited?
  • Do you or your spouse own more than one residential property?
  • Is your home owned by you or perhaps by your business and let back to you?
  • Are you a UK taxpayer?

We will quickly extend past the remit of this article if we go much further, but in brief, if you inherited your home, even if the estate paid IHT (Inheritance Tax) on the value of the home at the time, when you sell the home you will probably have to consider paying CGT (Capital Gains Tax) on any increase in value from the date you inherited and the date you sold. CGT rates are regularly revisited by Government, as are the various annual reliefs allowed before tax becomes payable, so you are best advised to speak to your accountant in such instances.

If the property you are selling is not your main residence then you are, again, likely to be liable for Capital Gains Tax on any ‘profit’ made during your ownership. This profit only becomes taxable upon disposal and realisation and again, there are annual reliefs available. Also, should you have capital losses you may be able to apply them against your profit before tax is calculated on the net surplus. Of course, if you are continually buying and selling property as a business, it might be that constantly realizing capital profits starts to become a revenue stream that might better be considered as income rather than a capital gain. In such cases income tax (or corporation tax in the case of a limited company) might become payable.

5 Tips for Buy to Let Investors looking to Reduce their Capital Gains Tax liability.

Finally, as with all tax matters, you should consider your personal tax status and that of your spouse. Whilst you may expect to be liable (or not liable) for tax in certain circumstances, personal tax status and previous behaviour might result in a different outcome.

All things being equal, you can be sure that at some time you are likely to pay tax on your home’s value. To paraphrase Benjamin Franklin, there are only two certainties in life and those are death and taxes. Delay is probably the best you can hope for in either case...

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