Do you pay capital gains tax on a remortgage?

Remortgaging can be highly beneficial to homeowners looking to get better rates or release equity from the property. However, many are put off and rule this option out because they think you’re required to pay capital gains tax (CGT) on a remortgage. Fortunately, you don’t need to pay any capital gains tax if you decide to remortgage.

So, you can still consider whether it is right for your financial situation. In this guide, we’ll be covering the circumstances in which you would be required to pay capital gains tax. As well as how our licensed conveyancing solicitors can help you with property conveyancing in Newcastle.


What is capital gains tax?

When disposing of an asset that has appreciated in value, a capital gains tax must be paid on the profit earned from the sale. Not the total sum you have received. It is easy to misinterpret this type of tax, so it is important to recognise the difference between the two.

For example, if you bought your property for £100,000 and then went on to sell it for £150,000, you have made a profit/gain of £50,000. It’s this amount that you would pay capital gains tax on, NOT the entire £150,000.


Why don’t you pay capital gains tax on a remortgage?

Due to the fact that you could be getting a fairly large sum of money when you remortgage your property. You might have thought you would need to pay capital gains tax on it. However, simply remortgaging won’t fall under the terms of CGT.

Declaration and payment of capital gains tax is only needed if the remortgage was tied to the disposal of part of the beneficial interest. That, at some stage during the time you owned it, was not your main private residence.

Another example of when capital gains tax isn’t required is when you’re remortgaging your main private residence and adding someone to the title. So, the beneficial interest is shared. Also, if you’re remortgaging a buy to let property where you are not disposing of any interest in the house to your spouse, you won’t have to pay CGT.


Is CGT paid on equity released?

No, capital gains tax only applies when you have gained extra earnings from an asset being fully or partially disposed of. As an example, if you purchase a house for £100,000 using a £75,000 mortgage and the value increases to £200,000 in 5 years. You could then remortgage and release the extra £75,000 as equity and capital gains tax would not be required.

However, fast forward another 5 years and the property has increased in value again to £300,000. To find out your net gain if you decide to sell the house, you must subtract the original £100,000, the purchase and sale costs, and your capital gains tax allowance from the total. At the end, you will be taxed on the total net gain made.


What about if you’re an investor?

Given the rules surrounding capital gains tax and remortgaging, it can be advantageous for investors to remortgage a property if they’re trying to build up a portfolio. This is because if you have one property and want to expand your investments you might have considered selling that property to raise money to further invest. However, by doing so you would likely pay a significant amount of capital gains tax, reducing how much you have leftover for investing.

Whereas by remortgaging your current property you could keep it, release investment funds for another property, not pay any capital gains tax, and carry on benefitting from the cash flow it generates. It’s important to note though that this doesn’t mean you can avoid paying CGT forever. If and when you want to sell your property you will pay the tax on any gains you have made after deducting the original cost from the sale price.

When investing in property, it is important to proceed with caution. Remortgaging can be beneficial, but you should always be aware of potential tax consequences if something goes wrong. Or if you’re too careless with using a remortgaging strategy. It is recommended to seek expert advice before making any decisions on buying or selling property. If you need help with online conveyancing in Tyneside, be sure to contact us.



Overall, in the majority of cases if you’re remortgaging you won’t need to pay any capital gains tax. But each situation is different and if you think you might be required to pay it, it’s best to get in touch with a professional property lawyer. Our team at Toomey Legal come highly recommended and have many years’ experience in quick conveyancing in Cramlington and other areas of Newcastle and the North East. See how we can help with your property purchase or sale needs today.