Selling your UK BTL Property - Capital Gains?

Understanding Capital Gains on Property Sales

Capital Gains

Capital gains occur when a property is sold for more than its purchase price. Conversely, capital losses arise when the selling price is lower than the acquisition cost. These losses can be offset against gains in the same year or carried forward to offset future gains. However, losses cannot be carried back against gains from earlier years, except in the year of death.

Transfers of property between spouses or civil partners do not attract Capital Gains Tax (CGT). Each partner is entitled to their own annual allowance and lower rate tax band. Certain conditions apply, and the transfer must occur well before any onward sale is initiated.

Reporting Disposals

When you dispose of a property, you must report it to HMRC within 60 days of completion and pay any CGT due within the same period. A ‘real-time’ transaction return can be filed with HMRC’s capital gains tax service. Additionally, you should include the relevant gain and tax paid on your UK Self Assessment tax return. Failure to report in time will result in interest and penalties from HMRC.

For All Landlords

Deductible Costs:

• Cost of purchasing the property.
• Stamp Duty on purchase.
• Professional fees (solicitor, surveys, accounting, etc.).
• Improvement costs (renovations, new kitchens, etc.).

Available Reliefs:

• Capital Gains annual tax-free allowance (£3,000 in 2024/25).
• Principal Private Residence Relief (PPR) if the property was your personal/primary residence at any point.
• Lettings Relief.
• Entrepreneurs' Relief for furnished holiday lets (FHLs), with gains taxed at a reduced rate of 10%.

For Non-Resident Landlords

Properties Purchased Before 5 April 2015:

From 6 April 2015, non-resident Capital Gains Tax was charged on direct disposals of UK residential property. The gain calculation depends on the property acquisition date. For properties acquired after 5 April 2015, standard rules apply. For properties acquired before this date, tax applies only to gains from 6 April 2015 to the sale date. There are three methods for this calculation:

1. Rebasing: Calculate the gain by finding the difference between the sale proceeds and the property value on 5 April 2015. The property cost is adjusted to the 2015 value, often requiring a property valuation using similar sales data.

2. Time Apportionment: Calculate the gain increase since acquisition, split between ownership before and after 5 April 2015. Tax applies to the post-2015 portion, which is useful if the property value has risen evenly.

Example: Disposal of Property Owned Before 5 April 2015

• Property Sale: £100,000
• Selling Costs: (e.g., solicitor and agent fees) - £5,000
• Acquisition Costs: (including enhancement costs) - £55,000
• Or Use 2015 Value: Market Value at 5 April 2015 plus enhancement costs after 5 April 2015 - £80,000
• Profit: £15,000

For properties sold after 2015, it is often more efficient to use the market value at 5 April 2015.

Example: Disposal of Property Owned After 5 April 2015

• Property Sale: £100,000
• Selling Costs: (e.g., solicitor and agent fees) - £5,000
• Acquisition Costs: (including enhancement costs) - £55,000
• Gain: £40,000

Understanding these rules and reliefs can significantly impact your capital gains tax if/when you sell your property.

As always, get in touch if you have any questions.