Capital gains tax is a tax that is paid on the gain (profit) you make when selling a buy to let property and this needs to be include in your self-assessment tax return. If you have lived in the property as your main home at any time during ownership, working out the tax due is more complicated.
Capital gains tax is a tax that is paid on the gain (profit) you make when selling a buy to let property and this needs to be include in your self-assessment tax return.
If you have lived in the property as your main home at any time during ownership, working out the tax due is more complicated.
How much tax you pay as a landlord when selling your buy to let property depends on how much income you earn in the tax year of the sale.
The current 2022/2023 tax rate is 18% for basic rate taxpayers with earnings of up to £50,000 in a tax year.
For higher rate taxpayers who earn more than £50,000 in a tax year, the rate rises to 28%.
1. CGT tax-free allowance – Everyone has an annual CGT tax-free allowance called an annual exempt. The allowance is set at £12,300 until April 2025.
2. Private Residence Relief (PRR) – If you have lived in your buy-to-let at any time during your ownership, you are entitled to make a PRR claim for that period. PRR is aimed to remove any CGT for the years you lived in the property plus nine months, which is a CGT-free period to allow you to sell.
3. Letting Relief – If you have lived in your rental property at the same time as your tenants, you can claim Letting Relief. This rule changed in April 2020 to limit claims for the relief. Taking in a lodger is different from renting out a home – look at the Rent-A-Room Scheme for tax breaks relating to lodgers.
4. CGT expenses – CGT rules allow landlords to offset some property-related expenses against the tax they pay:
Buying costs – legal fees, surveys/valuations and stamp duty
Improvement costs – Costs for adding to the property, like a loft conversion, extension or building a garage providing the improvement is still there when the property is sold.
Selling costs – legal fees, estate agent or auction fees
5. Sharing ownership – If you have 100% ownership and are married or with a civil partner, consider giving them a share in the property. Transferring a share of ownership is tax-free but you need to check if stamp duty is payable. The advantage is you and your partner will both have a CGT tax-free allowance and qualify for PRR on their share of the property.
Moving into a buy-to-let – The idea works but is not straightforward. To call the property home, you must move your life and make the property your main residence. You can claim PRR for the time you live in the property plus 9 months.
6. Giving away a buy-to-let and CGT – Not all gifting of buy-to-lets is CGT-free. Although transfers to a spouse or civil partner are ‘no gain, no loss’ transfers, gifts to ‘connected people’ are considered disposals at market value and taxed as such even if no consideration was handed over.
Do you need to consider you tax position? Do you need a solicitor to assist with a property transfer? Our team can provide you with advice and guidance for all your property requirements. Call today on 01642 252555.
Disclaimer: this is intended as basic information only and you should seek the professional advice from an accountant or financial advisor on any tax liability and reliefs you may have.
