What Can You Deduct from UK Capital Gains Tax on Property?
Landlords and property investors need to know what Costs can be Deducted from Capital Gains Tax on UK Property to reduce their CGT bill payable to HMRC.
As a property accountant with an expert team managing thousands of landlords’ financial affairs, I understand the complexity of navigating allowable expenses for capital gains tax on property in the UK.
Once you know all the capital gains tax on property allowable expenses you can claim for, you will be able to keep more of the sales proceeds in your pocket.
Any calculation of CGT starts with the gain, which is the difference between what was paid for the property originally and what it is now worth. Next comes the allowable deductions.
If you get stuck, our team of property tax experts are here to help you identify the relevant allowable costs and expenses to reduce Capital Gains Tax. Give us a call or book a one-to-one consultation call for personalised advice.
CGT is usually due on property that isn’t your main residence or on your main residence if you have let it out or used it for business. So this will apply to any buy-to-let you own that isn’t your main residence, and any second homes you own.
If you inherit a house from a family member, you’ll only be liable if and when you sell it.
If you have lived in your main residence for the entire time you’ve owned it and haven’t let it out or used it solely for business purposes, you should be exempt.
To learn more about deductions, you can visit our website, use our online CGT calculator, or book a one-to-one consultation with a member of our team to discuss this and any other tax questions you may have.
Please note that you will also have to declare the capital gains on your self-assessment tax return. This allows HMRC to check the accuracy of your 60-day tax submission report.
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Circumstances under which CGT is applied.
CGT is usually due on property that isn’t your main residence or on your main residence if you have let it out or used it for business.
This applies to any buy-to-let you own that isn’t your main residence, including buy-to-let properties and second homes.
Do I have to pay capital gains on inherited property?
If you inherit a house from a family member, you’ll only be liable if and when you sell it.
What is the CGT main residence exemption?
If you live in your main residence for the entire time you’ve owned it and haven’t let it out formally or used it solely for business purposes, you should be exempt.
More information about Capital Gains Tax deductions can be found on the UKGov website.
If you’re selling your main residence, it is exempt from CGT if all of the following apply:
– You have one home and have lived in it as your main home for all the time you’ve owned it
– You have not let part of it out (having a lodger is allowed)
– You have not used part of your home solely for business purposes
– The grounds, including all buildings, occupy less than 5,000 square metres
– You did not buy it only to make a gain
If all of the above points apply, you will qualify for Private Residence Relief. The amount of time you lived in the property will give you tax relief for that period plus an additional nine months.
This means you will not have to pay any CGT.
If CGT is due, what percentage of the profit is charged?
If you owe capital gains tax, it’s calculated by subtracting the property’s purchase price from the new sale price. Your remaining amount is the profit, and 24% of that profit is the CGT payable (as a high rate taxpayer). This is the best way to reduce the amount of capital gains tax when selling residential property.
However, understanding allowable deductions (allowable expenses) is essential for maximising the profit you keep and prevent over-paying.
What are the allowable deductions for Capital Gains Tax on property?
Before you calculate the final bill, here are some of the allowable expenses you can deduct:
– Private Residence Relief (for the period you have lived in the home plus an additional none (9) months
– Costs of buying and selling, including Stamp Duty, solicitor fees and estate agent fees
– Eligible costs of improvement such as an extension, a renovation or a new kitchen
You are not able to deduct maintenance costs or mortgage interest from your HMRC bill.
You can further reduce your liability by doing the following:
– Keeping a record of costs and deducting them
– Offset your losses from other assets
– Make use of the spousal allowance of £6,000 (2023-24) and the annual exempt amount of £3,000 (2024-25)
– Consider your spouse’s income if they are on a lower tax rate
– Sell at the right time
Can I use losses as allowable expenses from previous property sales?
Yes, capital losses can be deducted from any capital gains made in the same tax year.
For all your capital gains tax questions and related questions beyond, why not book a personalised tax consultation with a member of our specialist team today?
