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If you own your own home, more than one property or are a property developer you may be wondering what capital gains tax is, and if you are liable. Usually if you rent out other properties that aren’t your main residence, or you have refurbished another property as an investment, the profit you make when you sell that property is subject to capital gain’s tax, as you are gaining on the capital you own. Also if you proceed to do a series of developments and sell these properties to make a profit, you may also be responsible for paying income tax on any profit you make, but you will need to get financial advice to be certain.
No matter what your circumstances are, if any other properties you own are not your main residence which includes home you may stay in regularly, those properties will still be liable for capital gains tax. The only single exception to your liability is your main residence, however you can elect to have your holiday home or other property as your principle home which must be done within two years of taking over this other property as your main form of residence. You may then be exempt from capital gains tax on a second property if it was your principle residence at any point during the period you owned it. In this case you may be exempt from paying capital gains tax for the final three years of owning the property.
There are other instances where you would not be liable to pay capital gains tax on your property. If the property you owned was your only home the whole time you owned it, and you used it as your own home, you would not be liable. Also if it was only used as a home for yourself and your family throughout the duration of ownership, and you haven’t rented it out to others, you would also not be responsible for paying capital gains tax. Your property also can’t exceed 5,000 square metres, otherwise you may become liable to pay tax on any profit you make once the property is sold. It is also important to remember that if you use any part of your home for business purposes; such as an office then you may be liable to pay capital gains tax on a proportion of the profit you make.
If you think you are liable to pay any capital gains tax, you will need to fill in a tax return and declare this to the tax office separately to the conveyancing process of selling your property, otherwise you could encounter problems in the future. You will only pay capital gains tax on the profit made on your property – therefore this excludes any costs, the original price of the home, all fees and stamp duty, and in some cases any major improvements. It will then apply to all profits over the Annual Exempt Amount minus any expenses already mentioned.
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