Reduce Property Gains Tax, Property Investors

Avoiding Capital Gains Tax on property UK

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

8th December 2020

How much CGT UK will I pay when selling a rental property? Capital Gains Tax Calculator

The Government requires that you only pay CGT if your gains throughout the year exceed the Annual Exempt Amount (AEA). There are several CGT 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 CGT 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. You ought to use a capital gains tax calculator to work out your CGT liability before you sell the property. That way you can identify some tax reduction strategies. Get your tax calculator at the ready.

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 the 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. I am sure they have the same tax calculator too.

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 your tax accountants before submitting your return to HMRC using a capital gains tax calculator.

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

See how we can help you



Who pays Capital Gains Tax and when is it due?

You must report and pay any Capital Gains due to HMRC within 60 days of the sale of a buy to let property. Be sure to use our capital gains tax calculator for you to work out the CGT liability before you pay. It might be advisable to use our capital gains tax calculator whilst booking a tax call with one of our property accountants to see what reductions you can make using their tax calculator.

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 CGT. You can work out the CGT reliefs such as the PRR using our free Capital Gains Tax calculator.

 

 

Tax Applies Upon the Agreement of Sale - Delayed Completions 

There may be times when people agree to sell a property sometime in the future. CGT applies upon the sale agreement rather than when the sale took place. You have plenty of time to warm up your tax calculator to work out your liability.

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. Incorporation relief is not something that you can easily understand using a capital gains tax calculator. You will need to speak with a property accountant to ensure that this relief is applicable and workable. It would be nice to have a tax calculator do all the hard work but sometimes you need to understand the law to apply for the tax reliefs.

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

See how we can help you

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 CGT bill is likely to arise. The 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 a trust for children. The types of tax avoided are CGT and Stamp Duty Land Tax. You will need a tax calculator to work out the CGT and add this to the SDLT to see how much you can save.

Tax When Getting A Divorce

There are many tax considerations when getting a divorce. You may need to pay CGT and Stamp Duty Land Tax when getting a divorce.

How do Enterprise Investments Schemes help reduce CGT

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.

Use a deed of trust to reduce CGT

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 CGT 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.

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