If you’re a landlord and you’re selling your rental, it’s important to understand the potential tax implications – particularly Capital Gains Tax (CGT). Failing to prepare could result in an unexpected and substantial tax bill. In this guide, we’ll walk you through what you need to know before you proceed.
What tax do you pay when selling a buy-to-let?
When selling your rental, the main tax you’re likely to encounter is Capital Gains Tax (CGT). This is a tax on the profit (or gain) you make when you sell an asset that’s increased in value – such as an investment property. CGT only applies to the gain you’ve made, not the total sale price.
If you’ve owned the property for several years, the gain may be larger than you expect. According to the UK House Price Index, average property prices have almost doubled in the past 20 years – so the tax could be significant.
Note: If the property is owned through a limited company, CGT does not apply. Instead, Corporation Tax on property sales is charged on any profits the company makes.
How much Capital Gains Tax will I pay?
The amount of CGT payable depends on your income, as your property gain is added to your total annual income to determine the tax rate:
- Basic rate taxpayers pay 18% on gains from residential property.
- Higher and additional rate taxpayers pay 24% on residential property gains.
These Capital Gains Tax rates apply throughout the UK, including Scotland. However, Scottish income tax bands differ from the rest of the UK and may affect how your gain is calculated.
Note: These rates can change – so always check the latest rates or seek professional advice before selling your rental.
Tax allowances and reliefs landlords can claim
When calculating how much CGT you owe, several landlord tax reliefs and allowances may reduce your bill:
- Annual CGT allowance: Each individual has a tax-free allowance for capital gains. In the 2024/25 tax year, it’s £3,000. If you jointly own a property with a partner, you can combine your allowances.
- Deductible costs: You can subtract certain expenses from your gain, including:
- Stamp Duty paid at purchase
- Conveyancing and legal fees
- Surveyor’s costs
- Estate agent fees when selling
- Capital improvements: If you’ve made significant upgrades – such as adding an extension – you may be able to deduct those costs.
It’s also important to understand what you can’t deduct:
- Routine maintenance and repair costs
- Mortgage interest payments
Additionally:
- If the property was once your main residence, you might be eligible for Private Residence Relief, subject to meeting specific criteria.
- If you’ve made a financial loss on other assets or in previous tax years, these capital losses can potentially be offset against your gains.
How and when to pay CGT
Unlike income tax, you won’t receive a bill for CGT automatically. When selling your rental, you’re responsible for:
- Reporting the gain to HMRC
- Paying any CGT owed within 60 days of the sale completing
This must be done via the Capital Gains Tax section on the Gov.uk website. Failure to report and pay on time could result in penalties and interest charges.
Selling your rental: Why expert advice matters
Selling your rental isn’t just about finding a buyer – it can also have serious tax implications. Alongside the potential CGT liability, you’ll also be giving up future rental income. As rules frequently change, it’s vital to consult a qualified accountant or financial adviser who can assess your personal circumstances and guide you accordingly.
While we can’t provide tax advice, we can help with all other aspects of letting, managing, or preparing a property for sale. If you’re considering selling your rental and would like professional support from a local property expert, get in touch with our team today.
We hope you’ve found this guide helpful. If you know another landlord who is thinking about selling their rental, feel free to share this article with them.
Disclaimer: This article is intended as general guidance only and does not constitute financial advice. Always seek professional assistance tailored to your individual situation.
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