For landlords, selling a property can result in capital gains which might mean that they face a capital gains tax bill.
Understanding capital gains tax implications is important for landlords so they can accurately assess their tax obligations.
What is Capital Gains Tax (CGT) in the UK?
Capital gains tax is a tax on the profit made from selling an asset that has increased in value. For landlords, this typically applies to the sale of rental properties. CGT is calculated based on the difference between the sale price of the property and its original purchase price, also known as the capital gain.
What is the capital gains tax allowance in the 2024/25 tax year?
The government have reduced the capital gains tax allowance in the 2024/25 tax year to £3,000 per person per year. Any gains over £3,000 must be declared on a tax return.
What are the rates of Capital Gains Tax?
The rate of capital gains tax depends on the landlord’s total taxable income and the type of asset being sold. In the 2024/25 tax year, the basic rate of CGT for residential property is 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.
This is the rate for property, the rates for selling other assets such as shares are different.
How can landlord’s calculate how much the Capital Gain is?
To calculate the capital gains tax owed, landlords need to determine the capital gain from the sale of the property. This is done by subtracting the original purchase price or the property from the sale price.
There are some allowable expenses which can be deducted such as home improvement costs and the expenses associated with selling the property.
Letting Relief and Private Residence Relief:
Landlords may be eligible for certain reliefs that can reduce their capital gains tax liability. Letting Relief, for example, can be claimed if the property was previously used as the landlord’s main residence and has been let out at some point. Private Residence Relief may also apply if the property has been the landlord’s main residence at any time during their ownership.
When does Capital Gains need to be declared?
Landlords must report any capital gains to HMRC through a self-assessment tax return.
Seek advice from a financial adviser
Capital gains tax can significantly reduce the amount of profitability for landlords who are selling their properties. By understanding the Capital Gains Tax rules, allowances and rates then landlords can create a financial plan to reduce their capital gains over a number of years. A financial adviser at Four Wealth Management can help landlords to create a financial plan to sell their properties in a tax-efficient way.
Book a no-obligation meeting online or call us on 0117 973 0500.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
