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Your guide to Capital Gains Tax for landlords
The buy-to-let market in the UK has been an appealing side-hustle or main business venture for many landlords. With fluctuating property prices, the cost-of-living crisis and changes to tax legislation the buy-to-let market may not appear to be as lucrative as it once was.
By Catherine Heinen, FCCAThe Office of National Statistics (ONS) have released data confirming there are around 2.82 million landlords in the UK. Of those landlords the main reason for becoming a landlord were:
- 42% had a preference to invest in property
- 40% were using their investments to contribute to their pension
- 35% used the property to supplement their income
With a new Government in place in the UK following a General Election, and the suggestion of rising Capital Gains Tax rates, some landlords will be considering whether now is the time to sell up.
What is Capital Gains Tax for landlords?
Capital Gains Tax (CGT) is the tax on the profit/gain made from disposing of an asset that has increased in value. A chargeable disposal for CGT can mean selling, transferring, gifting and disposing of.
For UK landlords, this means paying tax on the profit from selling a property. This includes buy-to-let properties and can include properties that were once their main residence.
Overview of CGT rates for landlords
The CGT rates for landlords depend on their income tax band. The income tax bands are based on your total income. If your total income and gains are within the basic rate band the CGT rate on residential properties is 18%. If your total income and gains push you into a higher rate tax band you will pay CGT at 24%.
Most individuals, personal representatives and trustees for disabled people have an annual exempt amount (tax-free allowance) of £3,000. A lower annual exempt amount of £1,500 is applicable to most other trustees.
CGT reliefs and exemptions for landlords
Here we explore the CGT reliefs available for landlords and property owners.
Private Residence Relief (PRR) and how it works
Private Residence Relief (PRR) is usually available where the property was your main residence at any point during ownership. PRR exempts the gain for the period you lived in the property and can reduce your CGT liability.
The relief has rules and exemptions so ask a professional for help when calculating your reliefs. If a property was your main residence throughout ownership, it is likely that there is no CGT liability.
Having a clear list of dates throughout ownership is crucial. This list should indicate when you used the property as your main residence, when you rented it out, and when it was empty.
Letting Relief and how it is calculated
Letting Relief is available if you let out part of your main residence while living there. You must be living in the property at the same time as letting out part of it.
Need more help understanding Capital Gains Tax?
Contact TaxAssist Accountants for a free, no-obligation consultation.
Or contact usHow to calculate Capital Gains Tax for landlords
Capital Gains Tax can be complicated, particularly when calculating gains and reliefs. We suggest consulting with an accountant to make sure you calculate the gain accurately and include all relevant costs. Your accountant can also make sure you’re claiming reliefs correctly.
Step-by-step guide to calculating CGT liability
- Calculate the gain: Subtract the purchase price and allowable costs (e.g. legal fees) from the sale proceeds.
- Annual Exempt Amount: Deduct the annual exempt amount from the gain.
- Other reliefs: Calculate and deduct other reliefs from the gain.
- Calculate the tax: Apply the appropriate CGT rate based on your income tax bracket to the remaining gain.
CGT calculation examples
Example 1: A basic rate taxpayer sells a property with a gain of £20,000, which does not push them into the higher rate band. After deducting the £3,000 allowance, the taxable gain is £17,000. The CGT owed at 18% is £3,060.
Example 2: A higher rate taxpayer sells a property with a gain of £100,000. After deducting the £3,000 allowance, the taxable gain is £97,000. The CGT owed at 24% is £23,280.
Minimising Capital Gains Tax liability for landlords
Strategies for Reducing CGT Liability
Holding on to properties
Holding onto properties for longer may allow you to benefit from PRR and Letting Relief. This may reduce your CGT liability when you eventually sell.
Tax planning with your accountant
Working with your accountant will help you stay ahead of upcoming tax changes. This could include tax bands, tax rates and CGT reliefs which will affect your gain and tax liability. Structuring and spreading disposals to make use of your annual exempt amount for each year is beneficial.
Using losses against gains
If you have capital losses from other assets, you may be able to offset these against your gains. This will reduce the amount of CGT payable.
Transferring property ownership
Transferring ownership to a spouse or civil partner may be advantageous for various reasons. A transfer between a spouse of civil partner does not attract capital gains tax. If you're considering transferring property ownership, you should seek financial and legal advice.
Reporting and paying Capital Gains Tax for landlords
How to report a property gain and CGT liability
UK and non-UK landlords must report and pay CGT when selling a UK residential property within 60 days of completion. This deadline applies to both residents and non-UK residents. While UK residents must only report a disposal where there is a gain, non-UK residents must always report the disposal. This means that reporting your gain and liability can’t wait until your self-assessment tax return.
To report and pay online you can create a Capital Gains Tax on UK property account with HMRC. You’ll need to know:
- the address and postcode of the property
- the dates you purchased and sold the property (date of exchange and completion)
- the value of the property when purchased and sold or disposed of
- additional allowable costs when buying and selling the property
- CGT reliefs and exemptions applicable
You can complete a paper form if required, you’ll need to request this from HMRC.
You must also report the property sale on your Self-Assessment tax return.
CGT deadlines and penalties for a residential property disposal
Failure to report and pay CGT on time can result in penalties and interest charges. Meeting the 60-day CGT reporting deadline will ensure you avoid these additional costs.
How TaxAssist Accountants can help
Our accountants keep up to date with CGT rates, allowances and reliefs for landlords so we can help you can make informed decisions. Call our tax experts on 0800 0523 555 or use our online contact form.
Frequently Asked Questions
No, if the property was your main residence for the entire period of ownership, you are exempt from CGT. If there is mixed property use, then you may need to consider CGT implications.
Yes, if you lived in the property as your main residence and let it out, you can claim both Private Residence Relief and Letting Relief.
Date published 16 Jul 2024 | Last updated 6 Aug 2024
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.![](https://ta-support.nyc3.cdn.digitaloceanspaces.com/head-shots/uploaded/1700564225_210x210.jpg)
Catherine Heinen, FCCA
Catherine is a Technical Content Writer at TaxAssist Accountants, and a qualified accountant. With experience working at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.
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