Do I Pay Tax When Selling My House Without Buying Another?

Yes, you may need to pay Capital Gains Tax (CGT) when selling a house if certain conditions apply, regardless of whether you buy another property. However, whether you pay CGT largely depends on whether the property was your main residence and how long you lived in it.

1. Selling Your Main Residence

If the property you’re selling has been your main residence for the entire time you owned it, you likely won’t need to pay Capital Gains Tax thanks to the Private Residence Relief (PRR). This relief generally covers your main home, meaning the profit (or "gain") you make from selling it is tax-free.

Key Points:

• Private Residence Relief: If the property was your only or main home for the full period of ownership, you are exempt from CGT on the sale.
• Final Period Exemption: Even if you moved out before the sale, the final 9 months of ownership are still exempt under PRR.

2. Selling a Second Home or Investment Property

If the property was not your main residence (e.g., a second home or a buy-to-let investment), you will need to pay Capital Gains Tax on any profit made from the sale.

CGT Rates:

• For basic rate taxpayers, the CGT rate on property is 18%.
• For higher and additional rate taxpayers, the rate is 28%.

3. What Happens If You Don't Buy Another Property?

Whether or not you purchase another property does not directly affect your tax liability when selling. The crucial factor is whether the property being sold qualifies for Private Residence Relief. If it does not, then you will be liable for CGT on any gain made from the sale.

4. Capital Gains Tax Allowance

Every individual has a CGT allowance, which allows you to make a certain amount of gains tax-free each tax year. For the 2023/24 tax year, the allowance is £6,000. If your gain exceeds this amount, you'll be taxed on the excess.

How to Calculate Capital Gains Tax:

1. Determine the Gain: Subtract the purchase price of the property (including any improvement costs and selling expenses) from the sale price.
2. Apply Reliefs: If applicable, use Private Residence Relief to reduce or eliminate the gain.
3. Subtract CGT Allowance: Reduce the gain by the CGT allowance (£6,000).
4. Calculate CGT: Apply the appropriate CGT rate based on your income.

Example:

• You bought a second home for £150,000 and sold it for £250,000, making a gain of £100,000.
• After deducting your CGT allowance (£6,000), your taxable gain is £94,000.
• If you’re a higher-rate taxpayer, you’ll pay 28% CGT on £94,000, resulting in a tax bill of £26,320.

Conclusion

If you’re selling your main residence, you likely won’t pay any tax on the sale. However, if it’s a second home or an investment property, Capital Gains Tax will apply, regardless of whether you buy another property. If you're unsure, it’s wise to consult with a tax advisor to ensure you're handling the sale correctly and minimizing any tax liabilities.