When you sell a property that isn’t your home, then any profit you make on its sale is liable for Capital Gains Tax (CGT). This is the difference between what you sold the property for and what it originally cost. It means that the tax will apply to any buy to let properties that aren’t your main residence, a commercial premise or a property you have inherited. It also applies to land.
Just like income tax, there is a threshold (i.e. the amount at which you start paying tax). In the UK, this is currently £11,700 (or £23,400 for couples who pool their allowances) for the tax year 2018-19. At the moment, the rate of CGT for property is 18% for a basic tax payer and 28% for the higher rate. This compares to 10% and 20% for CGT on other assets which aren’t property, such as business plant and machinery or shares.
What you can offset against your bill
● If you’ve added on an extension, loft conversion etc. then you can deduct the money the materials and labour etc. cost from your profit, so that you’ll pay less tax;
● You can offset the cost of solicitors or conveyancers and estate agent fees for selling the property;
● Any stamp duty you paid on purchasing the property;
● If you’ve made a previous loss with another property in your portfolio, then this can be deducted from the profit of the property you’ve just sold;
● If the property was classed as a business asset i.e. you used it as an office, for instance, then you could claim on this;
● If the property is a gift to a spouse or civil partner, or to a charity, then CGT wouldn’t apply.
How CGT works with property
Unlike with some assets where you simply declare your CGT profit at the end of the year when filing a tax return, in the case of property, the tax office has to be notified within three months of the property being sold (although you won’t have to pay it until you file at the end of the tax year).
Special circumstances and CGT
● Even if your property was destroyed in a fire, you would still have to pay CGT on the amount of compensation you received from the insurer;
● If you live abroad, then you’ll have to declare any profits to HMRC within 30 days of the sale of the property. This is unlike other assets such as selling a business where you wouldn’t have to pay CGT unless you returned to the UK within five years of their sale.
Proposed changes to CGT declarations on property
Draft legislation for new rules concerning CGT and the sale of property have already been drawn up. If accepted by parliament it would mean that landlords would have to pay CGT within 30 days of the property being sold. This means that landlords and investors would have to reassess their cash flow strategy. The bill has yet to be approved, but if it does then it will likely take effect in 2020.
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