The climate for landlords has been changing recently, with new legislation granting tenants more rights. If you’re thinking of selling your rental property, don’t forget to think through the implications of Capital Gains Tax, writes Tax Technician Trisha Doan.
If you’re biting the bullet and planning to dispose of the property you’ve been renting out, it’s always worth having a discussion with your accountant about Capital Gains Tax (CGT).
The clue’s in the name – you pay tax on the gain you make.
So how’s that calculated? Well, it’s a pretty simple equation of the sale price minus the purchase price and allowable costs.
And what are those allowable costs? We’re talking about the stamp duty and legal fees when you bought the property, as well as the estate agency and legal fees when selling. Critically, you can also include capital improvements such as extensions, although not the costs of regular maintenance.
There’s an Annual Exempt Amount (currently £3,000), which is effectively a tax-free allowance. So it’s only your gain over £3k that is subject to tax.
Residential property gains are taxed at 18% to the extent the gain falls with your unused basic rate band and 24% on any amount above that band.
This means you may pay tax at both rates depending on your total taxable income and the size of the gain.
Managing these risks effectively requires consistent processes, strong oversight and experience working across international group structures. At Page Kirk, we specialise in supporting multinational groups with these exact challenges.
We can help:
Here are some additional points to discuss with your adviser:
Was the property ever your main home?
If so, you may benefit from Private Residence Relief. You won’t pay CGT for the period you lived in the property and the final nine months of ownership are usually exempt, even if you weren’t living there at that point.
What about Letting Relief?
This is very restricted now and isn’t relevant to most regular buy-to-let landlords. It only applies if you lived in the property at the same time as your tenant.
How does joint ownership affect CGT?
Each person gets their own CGT allowance and gains are split according to ownership share.
Remember, the reporting and payment deadline is quite demanding. You must report the sale to HMRC when it goes through and the CGT must be paid within 60 days.
Can losses be used?
Yes. Capital losses realised on other assets can usually be offset against gains, which may reduce the CGT payable.
Want to discuss your plans in more detail? Why not give Page Kirk a call on 0115 955 5500 or email us at enquiries@pagekirk.co.uk
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