Capital Gains Tax is payable on absolutely everything. If you make a profit from any venture, be it selling a personal possession or selling a buy-to-let property off after a year or two, selling an entire business, making profits from shares and investments – all the gains made is tallied and if you make over your personal allowance (currently £12,000), you’ll need to pay Capital Gains Tax.
How much you pay depends on how you made your money, how much, and your tax band for the year.
Our Guide to Capital Gains Tax on Properties
The information to follow is based on Capital Gains Tax for properties. Not other personal possessions. The HMRC will take into account all gains made in a given tax year so if you make a profit from properties as well as other ventures, Capital Gains Tax will be chargeable on all gains.
The rate of Capital Gains Tax you’ll pay differs dependent on your tax bracket and the asset that made the gains.
The only assets exempt from Capital Gains Tax is selling your car and selling your personal home. All other items that make a combined gain of over £12,000 for a single taxpayer is liable to pay Capital Gains Tax. Couples and those in a Civil Partnership can combine their CGT allowances for a total shared Capital Gains Tax Allowance for the year of £24,000.
The rates of Capital Gains Tax
Gains from properties
18% for basic rate taxpayers
28% for higher rate taxpayers
Gains from all other types of business ventures including from shares, interest on funds (excluding tax efficient savings such as ISAs and pensions) selling valuable items other than properties such as art and antiques are charged at 10% for basic rate taxpayers and 20% for those on the higher tax band.
As you’ll notice from the above rates, for landlords, there’s a higher bill. Capital Gains Tax is charged at 18% for basic rate taxpayers and 28% for those on a higher rate tax band. These rates apply to selling off buy-to-let properties and for property owners who flip properties for profit.
An important exemption and a solid reason for keeping detailed financial records is that any money spent by investors/landlords on either upgrading or maintaining the property can be accounted for, however, this does not include regular maintenance such as cleaning and decorating. These costs should already be accounted for in your self-assessment tax returns. In essence, if a property is held for five years, has £15,000 profit on the sale, but during that time, the roof’s been repaired, some plumbing work has been done, heating systems repaired etc. those costs eat into your profit.
When calculating the bill for CGT, the £15,000 isn’t really £15,000. In fact, when you analyse the costs incurred to maintain the property, or make upgrades, it’s possible the inflated selling price isn’t in profit at all. You could be selling for a loss. Estate Agent fees during the time you held the property are also deductible expenses.
What happens when you make a loss?
When you make a loss, you can carry the losses forward up to four years. The Capital Gains Tax for portfolio landlords is treated as one business. Profits and losses made over several properties have the figures pooled together, so what you lose on one property, yet gain on another can average out your total liability. A loss of £1,000 on one property, with a profit of £11,000 on another is £10,000 liability so under the £12,000 threshold for the year.
The more profit you make will increase the Capital Gains Tax bill. You can’t carry over your CGT allowance but you can carry over losses to future tax years for up to four years.
Married couples and those in a Civil Partnerships can transfer assets between each other, but when that asset is sold, the CGT is calculated based on the total gains on the property during the time it was held by a couple, and not solely in the name of one person at the time of sale.
Capital Gains Tax for Landlords Operating through a Limited Company
Given the consistently changing tax landscape for landlords, a number have opted to operate through a Limited Company, which changes how annual profits are taxed from Personal Income to Corporation Tax. It also changes your ability to use the Capital Gains Tax allowance of £12,000, which is only applicable to individual landlords. Furthermore, if you change to operate through a limited company, you’re not allowed to transfer assets held personally.
To transfer properties held in your own name to a limited company, you’d be personally liable for the Capital Gains Tax and any applicable Stamp Duty Land Tax. The CGT for transferring properties is based on the current market value of the property. Personal landlords benefit from the Capital Gains Tax Allowance. Business Landlords (with a Limited Company or other business structure) don’t get the same CGT allowance, but there is alternative Capital Gains Tax Relief available for businesses.
Whether you’re a personal or business landlord, the advice of an accountant can help you stay up to date with the latest tax relief and provide good accounting advice to keep your tax liability in check.
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