Property Investors

Capital Gains Tax Rates & Capital Gains Tax Allowance

simon

Simon Misiewicz

10th March 2020


An article relevant to the tax year 2020/21

In this article we will answer the following question from landlords about the Capital Gains Tax Rate

You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord. Opens in a separate tab.

1. What is reg capital gains tax allowance?

Capital Gains Tax is based on the sales process less the purchase price and capitalised refurbishment costs. This is further reduced by the annual Capital Gains Tax allowances. Please also do not forget that everyone has a Capital Gains Tax annual allowances and at the time of writing was £12,300. If a property is owned by a couple then each gets this allowance meaning that £24,600 would be tax-free.

You will need to speak with a property tax specialist to help you reduce capital gains tax on property sales.

Using your spouses Capital Gains Tax annual allowance to reduce your tax bill

Please read our article on how to reduce Capital Gains Tax by using your spouse’s annual allowance. This involves transferring part of the buy to let a property to a spouse or civil partner. That way they get their annual capital gains tax allowance to avoid paying tax. You will need to deed of trust and a form 17 to be sent to HMRC. The article will explain more.

2. What is the Capital Gains Tax rate for 2020/21? 

Capital Gains Tax Rates

As you can see that basic rate taxpayers have a capital gains tax rate of 18%. A high rate taxpayer has a capital gains tax rate of 28%.

3. How is Capital Gains Tax calculated?

Landlords disposing of their investment properties are expected to pay an 18% tax bill as a basic rate taxpayer. This increases to 28% for high rate taxpayers.

Example of how Capital Gains Tax is calculated 

Sarah buys a property for £100,000 and incurs £500 legal fees and other associated finance arrangement fees of £2,500. She then spends £5,000 on improvement costs.

She then sells the property for £120,000 and 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 18% CGT rate for basic taxpayers and 28% for high rate taxpayers. The same rate is also applied to additional tax ratepayers.

If you want to know more then please read our “buy to let tax tips for UK landlords” article

4. How to reduce capital gains tax?

You may wish to read another one of our articles where we discuss how to reduce capital gains tax when selling a buy to let property.

5. How can our property accountants help you reduce your buy to let tax?

Book a call to discuss our property accountancy services

Book a tax call with our property tax specialists using the code “Art25” to get 25% discount

Book a call to see how we can help you.