Property Developers, Property Investors

Capital Gains Tax when selling a London buy to let


Simon Misiewicz

22nd July 2021

The frequently asked questions about Capital Gains Tax when selling a London buy to let property

As property accountants, we are regularly asked about property Capital Gains Tax (CGT). We will look to answer the below questions in this Article.

“Are you paying too much Capital Gains Tax when selling an investment property?”

“What are the basics of CGT on London buy to let properties?”

“Who pays Capital Gains Tax, and when is it due?”

“How much CGT will I pay when selling a London rental property?”

“Where are the best places in London to invest in property?”

“How does Letting Relief work for Capital Gains Tax?”

“Is the buy to let boom in London over?”

“Do I have to complete a CGT return?”

“How can I avoid paying Capital Gains Tax?”

“Should I invest in Build To Rent in London?”

“How does this affect our American readers?”

Are you paying too much Capital Gains Tax when selling an investment property?

Our property tax specialists help over 1,000 monthly retained UK landlords and property investors to minimise tax whilst building their wealth.

There are many reasons why people pay far more buy to let CGT than they need to.

This is because:

– They do not know what they do not know.
– They have not spoken to a tax specialist to go through their situation to see what available tax reliefs are available to them.
– Their accountants or solicitors are not aware of the many reliefs available to their clients and are not taken advantage of.
– Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.

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What are the basics of Capital Gains Tax when selling a London buy to let property?

As property accountants serving landlords that purchase buy to let properties in London and across the UK, we know that property law’s impact can have a huge and negative impact on the profitability of portfolios being grown by property investors.

Capital Gains Tax (CGT) is one of the most complex areas where our clients request our expert tax advice.

CGT is a tax on the profit arising from the sale of a property. If you sell a London property, you may have to pay Capital Gains Tax on any profits.

A CGT bill will usually be applied when selling a second home or buy to let property.

Property landlords in London have faced challenging times during the Covid-19 pandemic, with the effects of Brexit taking their toll on property investments across the city and into bordering counties.

Tax changes have also started to impact property investors in London.

Landlords can no longer offset mortgage interest payments from rental income before tax.

Since April 2020, this has been replaced by a flat rate of 20% tax relief, further denting potential profits.

Capital Gains Tax when selling a buy to let

Work out how much CGT you will pay when selling a buy to let property. We will show you ways to reduce it too. Download today, save Tax tomorrow.


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Capital Gains Tax when selling a London buy to let property - The fears?

There are fears that Capital Gains Tax rates could be raised as the Government faces the massive bill from the impact of Covid-19.

If the property market in London drops, having been bolstered for some time, there could be superb opportunities for potential buyers and investors. Bricks and mortar are still a good long-term investment.

Spring 2021 brought two new developments to the UK tax environment.

Firstly, the Budget was delivered on 03 March along with the Finance Bill 2021 published on 11 March, setting out medium-term tax and expenditure plans as the UK economy emerges from Covid-19.

This was followed by ‘Tax Day’ on 23 March, seeing the publication of over 30 tax policies to modernise UK tax administration and developing policy.

There were no broad changes in the UK Capital Gains Tax regime in the Budget, although two reports have been published by the Office of Tax Simplification (OTS) in a two-stage review of capital gains.

The Government has not yet implemented any recommendations from the first OTS report. The details of the second report remain unclear in terms of their impact on Capital Gains Tax payments in the UK.

Capital Gains Tax on property is one of our main areas of expertise.

Who pays Capital Gains Tax and when is it due?

If you sell a residential property in London, you must report and pay any Capital Gains due to HMRC within 30 days of the sale.

Property investors pay Capital Gains Tax on buy to let properties and the capital gain received from the sale of other properties not classified as a main home.

This also includes land, second homes, business premises and inherited property.

Capital Gains Tax is paid on investment properties in London owned as an employed individual, an unemployed individual, a self-employed sole trader, or an individual in a business partnership.

To report any capital gain, you will need calculations for each capital gain or loss reported, details of how much each asset was bought and sold for, the dates you took ownership of and then disposed of the asset, as well as any other relevant information such as the costs of disposing of the asset and any tax reliefs.

Understanding the rules on Capital Gains Tax 30 days reporting and payment is vital for investors.

If you’re a property investor in London and are unsure whether you have to pay Capital Gains Tax, get in touch with one of our property accountants today.

How much CGT will I pay when selling a London rental property?

Property investors in the city currently pay Capital Gains Tax on a property at 18% if a basic rate taxpayer or 28% if a higher rate taxpayer.

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.

How and when you report Capital gains Tax over your annual allowance depends on how the gain was made.

To find out everything you need to know about Capital Gains Tax as a London property investor, take our expert advice.

Where are the best places in London to invest in property?

According to industry commentators, Kensington and Chelsea are the top spots, with the average landlord selling their buy to let for nearly £785,000 more than they paid for it a decade ago.

This meant that the gain made was more than nine times that made in the rest of England & Wales.

Camden, the City of Westminster and Hammersmith & Fulham ranked second and third, with the average landlord gaining £500,000.

Rental growth in central London has fallen, with rents dropping overall by more than 2% during the pandemic.

Across Inner London, rents dropped by over 17%, although rents were 2.6% higher than at the same time last year in Outer London.

Since 2018, the average capital gain made by London landlords has been shrinking.

Stronger house price growth is reversing this trend.

Landlords who have been in the property investment market for the longest time period are reaping the biggest rewards.

Property investors in London who have owned their buy to let property for over 15 years are making three times more than a landlord who has owned their property for less than five years.

Many of these longer-term landlords in London have also renovated and invested further in their property to add value.

How does Letting Relief work for Capital Gains Tax?

Letting Relief is a valuable relief that may reduce Capital Gains Tax payable on the sale of a property that has been let as residential accommodation.

Letting Relief reduces the amount of the gain brought into the charge of the disposal of a property.

If the property has at some point been the landlord’s only or main residence and part of the property has at some time during the period of ownership been let as rented accommodation.

To establish how much letting Relief you might get, firstly work out how much private residence relief you are entitled to.

Take the number of months lived in the property, add 18 and divide by the number of months you owned it, then multiply by the gain made.

If you’re llooking to gain Letting Relief and need advice, contact our property tax team without delay.

Is the buy to let boom in London over?

Despite media reports of a mass exodus of London landlords following the pandemic, new data suggests that buy to let landlords are now taking a more robust approach.

Landlords in London have made the biggest gains.

The average London property investor sold their buy-to-let for £302,000 or 71% more than originally paid for it, having owned for property for 9.8 years on average.

Last year reversed the fall in a London landlord’s gross profit.

The top 10 local authorities where landlords made the biggest gains last year were all in London.

London landlords who made the biggest gains are most likely to have a tax bill to pay, with 91% of investors making a gross gain over the annual CGT allowance.

Investors can offset costs such as Stamp Duty and renovation expenses from their CGT bill.

Do I have to complete a CGT return?

You will need to submit a CGT return to HMRC within 30 days if the gain is a residential property.

You will also need to submit a personal Self Assessment tax return to HMRC to show the gain of Capital Gains Tax.

If you are married or in a civil partnership, you will need to complete the 30-day report per person.

A taxable gain only exists where you have exceeded your annual allowance for the year.

Paying Capital Gains Tax on a property is relatively straightforward.

Once you have worked out your taxable gains, you need to report them to HMRC if they are above your Capital Gains Tax allowance.

How can I avoid paying Capital Gains Tax?

You do not usually have a Capital Gains Tax bill in the following circumstances.

– Gifts between husbands and wives
– Transfer of assets between civil partners
– Donations made to a charity
– If you have Capital Gains Tax losses brought forward from previous years

There may be times when people agree to sell a property sometime in the future. Capital Gains Tax applies upon the agreement of sale rather than when the sale took place.

There are many ways in which you can either reduce Capital Gains Tax or avoid CGT altogether. There are some ways that you can save on CGT.

Our Article on how to avoid Capital Gains Tax on properties in London provides useful reading.

Should I invest in Build To Rent in London?

Before Covid-19 took hold, the Build to Rent (BTR) was the biggest property market trend in London.

Although only representing 2-3% of the rental sector in the UK, it has been the fastest-growing area since 2016.

There are over 157,000 BTR homes in the UK, either complete, under construction or in the planning stage.

There are nearly 75,000 units in London, and there are BTR schemes in place across every major UK city.

The BTR sector is sometimes seen as the future of rental and property investment, presenting better homes with all the extras expected from today’s tenants such as broadband, on-site amenities and communal outdoor areas.

Build to Rent in London can represent a lucrative option for landlords, generating higher rent rates of around 11% higher than standard buy to let properties, with reliable rental income and annual growth.

Industry evidence suggests that BTR is enjoying consistent growth and will be seen as a haven for investors given the low risk it represents compared to other investments in London.

Demand is strong, developments are adapting to the post-Covid-19 world in various contactless and social distancing friendly ways, and the in-built remote working areas of BTR schemes across the city should give them an advantage over traditional private rental homes now that working from home is becoming commonplace.

How does this affect our American readers?

Americans that invest in London buy to let properties may find themselves paying CGT in the United Kingdom (UK) and in the United States of America (US).

Care must be taken not to pay too much capital gains tax to the IRS as you would benefit from a UK tax credit paid to the HMRC on your 1040 tax return.

To learn more, make sure you head over to our sister company Purser Tax that helps British people save tax in the US and Americans save tax in the UK.

It is one thing to be tax-efficient in the UK or the US; it is another thing to be tax-efficient across the Atlantic.

This is why you need to get a tax advisor that truly understands international tax.

Other Capital Gains Tax Articles relating to selling a Buy to Let property in London

You may be interested in our main Article on Capital Gains Tax rates and allowances.

You may also be interested to know how more about our services to help reduce your Capital Gains tax liability when you sell a buy to let property investment.

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