As a landlord, it's crucial to stay informed about capital gains tax (CGT) and any recent changes that could affect your financial planning.
What is capital gains tax?
CGT is a tax on the profit made when selling a property that has increased in value. It's not the total amount received from the sale that's taxed, but rather the gain, which is the difference between the purchase price and the sale price.
What's new for landlords?
Recent updates have seen changes in how CGT is reported and paid, especially concerning the disposal of UK residential properties. For properties sold on or after April 2020, where the completion date was on or after the 27th of October 2021 must report and pay CGT tax within 60 days of the completion date. You can do this in your Self Assessment tax return, or via your
UK property account - an online account that you can set up separately to report and pay any CGT.*
What you need to know about capital gains tax allowances
Every individual has an annual tax-free allowance for CGT, known as the Annual Exempt Amount, meaning you only need to pay CGT on gains that exceed this threshold. In November 2022, during the Chancellor's Autumn Budget announcement, the Government reduced the tax-free allowance for CGT from £12,300 to £6,000 for tax year 2023/24. This is further reduced to £3,000 for the tax year 2024-25 and will remain fixed at this level.*
Updates to the capital gains tax rates for landlords
In the Chancellor’s Spring announcement, it was announced that the Government has cut the higher rate for residential properties from 28% to 24%.**
The rate of CGT you'll pay as a landlord depends on your overall income tax band and the current CGT rate on buy-to-let properties. The steps to calculate this tax on a rental property may vary slightly - here’s a brief overview of the steps involved:
- Calculate your total taxable earnings taking into account any allowances and reliefs available
- Determine your capital gains by subtracting the selling price of your property from the initial purchase price.
- Subtract your tax-free CGT allowance.
- Add this amount to your taxable earnings, allowing for any deductible costs and expenses.
Based on your calculations, you can determine what tax band you’re in. If you’re a higher or additional rate taxpayer, you will now pay 24% on gains from residential property and 20% on gains from other chargeable assets. Basic rate taxpayers will pay either 10% or 18% for residential property, depending on their total taxable income and gains.*
For any questions, please contact a tax specialist who can assist you with this.
Reporting losses and keeping records
If you make a loss on the sale of a property, you can report this to HM Revenue and Customs (HMRC) to reduce your total taxable gains. It's essential to keep detailed records of all transactions related to your property, including purchase and sale agreements, receipts, and invoices, for at least a year after the Self Assessment deadline.
Exemptions and reliefs
There are certain exemptions from CGT, such as assets sold for less than £6,000, your car, individual savings accounts (ISAs), personal equity plans (PEPs), UK Government gilts, and premium bonds. Additionally, you don't usually pay CGT on gifts to your spouse, civil partner, or charity.*
Staying on top of CGT regulations is vital for landlords to ensure you remain compliant and can optimise your tax position.
Please note: This information is meant for guidance purposes only and should not be considered a substitution for professional advice. We recommend visiting the official UK Government website and/or speaking to a trained tax professional, such as an accountant or HMRC.
