How much CGT UK will I pay when selling a rental property?
The Government requires that you only pay CGT if your gains throughout the year exceed the Annual Exempt Amount (AEA). There are several Capital Gains Tax rates you need to be aware of.
The tax-free allowance is £12,300 for individuals. Keeping your profits below this threshold is a straightforward way to avoid paying Capital Gains Tax on a property portfolio. Please also do not forget that everyone has a Capital Gains Tax annual allowance and, at the time of writing, was £12,300. Married couples and civil partners get this allowance, meaning they get £24,600 combined.
Excess of £12,300 is subject to Capital Gains Tax 18% for basic rate taxpayers or 28% if high rate taxpayers.
This needs to be carefully monitored as a property gain could push a property investor from basic to the higher tax rate during a tax year, meaning you would also need to pay CGT at the 28% rate.
Example of CGT rates
Sarah buys a property for £100,000 and incurs £500 legal fees and other associated finance arrangement fees of £2,500. She spends £5,000 on improvement costs.
Sarah sells the property for £120,00. She pays the estate agent £1,500 and solicitors £500.
£120,000 sales proceeds
£100,000 less purchase price of the property
£5,000 Less Property improvement costs
£1,000 Less legal/solicitors fees £500 x 2
£1,500 Less estate agent fees
£2,500 Less arrangement fees
£10,000 taxable profit
Please note the acquisition costs and sales costs are not revenue items. I have seen many accountants and clients treat these incorrectly.
The profit of £10,000 is less than the CGT tax-free allowance of £12,300. She does not have a tax bill on this profit.
Any excess gains over the £12,300 capital gains tax allowance would be subject to an 18% CGT rate for basic taxpayers and 28% for high rate taxpayers. The same rate also applies to additional tax ratepayers.
It is always useful to check your CGT workings with capital gains tax accountants before submitting your return to HMRC.
Reduce Capital Gains Tax
Have you sold a property or plan to sell a property? If you have made a gain you may have a Capital Gains Tax liability. There are many ways to legally reduce your CGT liability
Who pays Capital Gains Tax and when is it due? Answered by our capital gains tax accountants
How long do I need to live in a house to avoid capital gains tax UK?
There is a relief if you have lived in a property and used it as your main home residence. Private Residence Relief will help you reduce Capital Gains Tax.
Tax Applies Upon the Agreement of Sale - Delayed Completions
There may be times when people agree to sell a property sometime in the future. Capital Gains Tax applies upon the sale agreement rather than when the sale took place.
Residential Property Investment - Transferring to a Limited Company
Selling a property to a third party or your own limited company is treated in the same way for tax purposes. CGT will be payable if a gain is made. It is possible to claim incorporation relief when transferring properties into a limited company to avoid paying CGT.
Reduce Capital Gains Tax
Have you sold a property or plan to sell a property? If you have made a gain you may have a Capital Gains Tax liability. There are many ways to legally reduce your CGT liability
UK Tax when transferring a buy to let property to a child.
Parents may wish to transfer a buy to let or second home to their children. This can be done, but they need to know that a Capital Gains Tax bill is likely to arise. The Capital Gain will be based on the market value less the purchase price and capitalised items. You will note the words market value. This prevents a parent from transferring an asset for less than it is worth.
We have written a separate article for UK landlords wishing to mitigate tax when transferring property into trust for children. The types of tax avoided are Capital Gains Tax and Stamp Duty Land Tax.
Tax When Getting A Divorce
There are many tax considerations when getting a divorce. You may need to pay Capital Gains Tax and Stamp Duty Land Tax when getting a divorce.
How do Enterprise Investments Schemes help reduce Capital Gains Tax
It is possible for you to invest in an Enterprise Investment Scheme (EIS) and get tax relief. There are two tax reliefs. The first is a 30% income tax reducer of the amount invested into an EIS. The other is the deferral of the capital gains made on selling a property.
Roll over relief when buying a replacement business asset
Use a deed of trust to reduce Capital Gains Tax
A deed of trust may also be used to minimise CGT liabilities as you can utilise one another’s CGT annual allowances. Not only that, but if done correctly, you can also identify the correct % allocation to maximise the basic rate tax band for CGT purposes.
This is more significant if you are married and the property is in one person’s name.
We have helped hundreds of UK property investors to minimise the impact of CGT using a deed of trust.
How to calculate taxable Capital Gains Tax for UK non-residents
There are three methods for calculating the chargeable gain or allowable loss.
– Method 1. The default method: This requires the property to be valued (“rebased”) at 5th April 2015 for residential and 6th April 2019 for commercial. The chargeable gain or allowable loss is the difference between the sale proceeds and the value on 5th April 2015/19. April 2015/19 property values will be subject to agreement with HMRC.
– Method 2. The straight-line time apportionment method calculates the gain by deducting the original cost from the sale proceeds. The resulting gain or loss is then apportioned with only the post 5th April 2015 proportion being charged or allowed for residential and post 6th April 2019 proportion being charged or allowed for commercial property.
– Method 3. The retrospective method calculates the gain or loss by deducting the original cost from the sale proceeds. In this case, the whole of the gain is chargeable.
