Capital Gains Tax (CGT) is a tax on the profit you make when you sell something you own which has increased in value. You are only taxed on the gain (i.e. the difference between your buying and selling prices), accounting for any allowances or reliefs. For a solicitor quote, click here.
Capital Gains Tax is usually payable when personal possessions (aside from your vehicle), worth £6,000 or more, are sold. These are deemed “chargeable assets” and include property that is not your main home (unless you have let it out, used it for a business or it’s very big).
Capital Gains Tax can also be payable on business assets and shares (although ISAs or PEPs are not subject to CGT).
If you’re a landlord who plans to sell off one or more of your rental properties, you should know how much Capital Gains Tax is payable, what you can do to minimise your liability, and how to report for CGT. Get a solicitor quote for buy to let conveyancing here.
Remember: You may have to pay CGT if you have returned to the UK but sell an overseas property.
Capital Gains Tax – The Basics
- Everyone gets a CGT tax-free allowance (i.e: an exempt amount each year) of £12,300 meaning you only pay Tax on profit above this amount. You may also be able to claim certain reliefs, while losses may be deductible, too. Both can significantly reduce the amount of tax you pay.
- Capital Gains Tax is not payable on assets you give or sell to your spouse or civil partner, providing you are not separated and you have lived together during that tax year
- However, you cannot freely give assets to their business to sell.
What Is The Capital Gains Tax Rate?
The Capital gains tax rate depends on the type and value of the gain, as well as your Income Tax rate.
If you’re a high earner (i.e. your taxable income is between £50,271 to £150,000) or an additional rate taxpayer (i.e. you earn more than £150,000), you will pay 28% tax on your gains from residential property sales (20% on other chargeable assets).
If you’re a basic rate Income Tax payer, you should:
- Calculate your taxable income (ie your income minus your Personal Allowance and any other Income Tax reliefs you may claim).
- Work out your total taxable gains – the difference between the cost price and sale price.
- Take off your CGT tax-free allowance of £12,300).
- Add this new total to your taxable income.
- If this figure is within the basic Income Tax band (£12,571 to £50,270), Capital Gains Tax of 18% is due, (10% on other chargeable assets).
- You must pay 28% Capital Gains Tax on residential property (20% on other chargeable assets) on any amount above the basic tax rate.
Income Tax bands are different in Scotland.
Remember: If you dispose of a jointly owned asset, Capital Gains Tax is payable on your share of the gain.
How To Pay Capital Gains Tax.
Since 6 April 2020, landlords have had to report and pay using a Capital Gains Tax on UK property accounts within 30 days of selling a property. There can be a penalty and interest payments if you don’t.
To use this service, you’ll need a Government Gateway user ID and password.
The info you will need to hand is:
- The full property address and postcode
- The date you became the property owner
- The date you exchanged contracts when on sale of the property
- The date you stopped owning the property
- The value of the property when it became yours
- The value of the property when you sold it
- The costs of buying, selling or making improvements to the property
- The details of any tax reliefs, allowances or exemptions you can claim
- The property type.
Once your account is activated, you can sign in whenever you need to report Capital Gains Tax on UK property and to view any returns you’ve already submitted.
Stamp Duty Land Tax (SDLT)
Landlords buying a rental property may also have to pay Stamp Duty Land Tax. This government tax is payable on property or land above a certain price threshold in England or Northern Ireland.
Similarly, if you’re buying a property or land in Scotland or Wales, there are equivalents of this tax to pay. Different rates apply for different property prices.
For full information on stamp duty, including what it is, how much it costs and to use our stamp duty calculator, take a look here.
**Since 1 April 2016, anyone purchasing an additional residential property (that is not their only or main residence) for £40,000 or more must pay an extra three per cent stamp duty above the current Stamp Duty Land Tax residential rates.