How Does Capital Gains Tax Work on Property?

Written By PropertyLoop
February 12, 2021

As a landlord you will gain passive monthly rental income from your buy to let and capital appreciation as the years flit past. And it’s exactly this capital appreciation that Capital Gains Tax (CGT) applies to.  

Because, if you decide you want to cash in on that capital appreciation by finally selling your buy to let, then you will have to pay tax on a percentage of the profits you made. 

It’s not all your profits that you pay tax on. Ever individual has a capital gains personal allowance of £12,300 free. But, certainly, any profit above that figure is considered taxable.  

Note that because the £12,300 is per person, if you owned the buy to let with another ie as a couple, then it would be a £24,600 free personal allowance you would be looking at before you had to start paying CGT. 

How Much Is Capital Gains Tax?? 

So, how much tax do you pay? Well, it depends on your current tax status at the time of the sale. If you are in the standard tax bracket then you’ll pay 18% on profits from the sale of your house above £12,300. If you are a higher or additional tax payer, then the tax percentage figure increases to 28%.  

However, there are ways to reduce the amount of CGT tax you will have to pay. If you made any improvements to the property over the years, such as upgrading the bathroom and kitchen or adding a garden house, then you can claim for these. You can also take off how much you paid in agency fees, the costs for your solicitor fees and stamp duty payments. 

You won’t pay any CGT at all if you don’t make any capital profit on your buy to let. But that’s very unlikely – and a bit pointless having it in the first place, if that’s the case! 

When Should Capital Gains Tax Be Paid?

The rules on when you pay CGT changed this year. Previously it was like self-assessment where you didn’t have to pay the current year’s tax until the following year. It changed in 2020 though and now CGT is due on a buy to let property or second home within 30 days of its sale. That’s a pretty major change and it’s one which all landlords have to be aware of – otherwise it could prove very costly. 

To pay the CGT you must fill in a Residential Property Return form and then pay the required amount. Failure to do so will lead to interest being charged and, if the offence is repeated often enough, a jail sentence. 

It may seem rather galling having to pay CGT – especially if you made a big profit on the sale of your asset. But most landlords are fine with this, considering the amount of profit they do make. 

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Buy-to-letCapital Gains TaxLandlord Regulations

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