What landlords need to know about Capital Gains Tax
3 December 2024
Selling a rental property or buy-to-let investment? Capital Gains Tax (CGT) is something you’ll need to account for. It’s a tax on the profit made when selling a property that has risen in value, and recent changes have made it even more important for landlords and property investors to plan ahead.
In this guide, we’ll cover how CGT works for landlords, what the latest updates mean for you, and how to make sure you’re managing it as efficiently as possible.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax paid on the gain (profit) you make when selling an asset like a rental property. For landlords, this typically applies to buy-to-let homes or properties in a rental portfolio. The gain is calculated as the difference between:
- The selling price of the property, and
- The purchase price, including certain allowable expenses like:
- Legal fees
- Estate agent fees
- Costs of significant property improvements (e.g., a loft conversion or new kitchen).
If you’ve made a profit, CGT will apply after your tax-free allowance is deducted.
How has CGT changed for landlords?
The Autumn Budget 2024 introduced changes to CGT rates and allowances that directly impact landlords:
Higher CGT rates
- The basic rate for CGT on residential properties has increased from 18% to 24%.
- The higher rate has risen from 28% to 32%.
These changes mean higher tax bills for most landlords, particularly those selling high-value properties.
Reduced tax-free allowance
- The annual CGT allowance has been reduced from £12,300 to £3,000.
- This lower threshold means more landlords will now need to pay CGT when selling rental properties.
No changes to the 3% surcharge
While there have been no changes to the additional surcharge for residential property sales, the higher base rates will increase overall costs for landlords.
Key reliefs and allowances for landlords
Even with these changes, there are ways to reduce your CGT liability as a landlord:
Private Residence Relief
If you lived in the property as your main home before renting it out, you may qualify for relief on the portion of the gain that applies to the time it was your residence.
Letting Relief
This can reduce your taxable gain if the property was previously your main home and then rented out. However, recent restrictions mean it only applies if you lived in the property with your tenants.
Allowable expenses
Deductible costs, like estate agent fees, solicitor fees, and improvements to the property, can significantly reduce your taxable gain. Be sure to keep detailed records of these expenses.
How to report and pay CGT
For landlords, reporting and paying CGT involves the following steps:
Calculate your gain
Subtract your property’s purchase price and allowable expenses from the sale price. Deduct the £3,000 allowance to determine your taxable gain.
Use HMRC’s online service
CGT must be reported and paid within 60 days of completing the property sale. This can be done through HMRC’s Capital Gains Tax on UK Property service
Keep accurate records
HMRC may request documentation for your calculations, so ensure you keep all relevant paperwork, including invoices for improvements and receipts for fees.
How Simon & Co can help landlords
Managing Capital Gains Tax can feel like a challenge, but you don’t have to do it alone. At Simon & Co, we specialise in helping landlords and property investors with:
- Accurate CGT calculations
- Exploring reliefs and allowances to minimise tax bills
- Navigating reporting requirements to ensure compliance
Whether you’re selling your first rental property or restructuring your portfolio, we’re here to offer practical, professional advice tailored to your needs.
Let’s make CGT easier for you
Selling a property doesn’t have to be stressful. With the right guidance, you can take control of your tax liabilities and focus on your investment goals. Contact Simon & Co today to learn how we can help.
