Understanding capital gains tax (CGT) for property and landlords is essential if you want to make sure your portfolio and business is as valuable as possible. The last thing you want is to contend with a tax you hardly understand.

CGT is hard enough for businesses disposing of regular assets to understand. But the rules are different for property and landlords, which is why you need a dedicated source of information by your side.

Read on for our ultimate guide on CGT for property.

Capital gains tax: the basics

CGT is the tax you pay on the sale of property and assets when the profit you make from market inflation exceeds the annual allowance.

As of the 2022/23 tax year, everyone gets an allowance of £12,300 that CGT can never touch. Trusts get £6,150.

That means if you sell a property for more money than you bought it for, then your profit (also known as your ‘capital gain’) that is above £12,300 may be taxed. 

You get taxed because the Government ultimately sees that profit as a form of income, and just like how people on payroll face income tax, people who get an income from the sale of assets or property face CGT.

How is CGT charged? 

CGT is charged depending on which band of income tax you’re in. If you’re a basic rate taxpayer, the amount you pay depends on the size of your gain. 

In a nutshell, you have to add your income and gains together, minus all relief and allowances. The portion that is within the basic income tax bracket is taxed at 18% on residential property (10% on other assets), while the portion above is taxed at 28% (20% on all other assets).

If you pay the higher rate of income tax, then you will automatically pay 28% on your gains from residential property and 20% on your gains from other chargeable assets. 

Unfortunately, there’s no choice about it, but you could always think about personal tax planning or supplementing your paycheck with dividend payments (if you’re the director of your own limited company) to get yourself into the basic rate of income bands without having to wind in your lifestyle.

You must report and pay CGT on most sales of UK property within 60 days.

Allowances and reliefs

After reading the above, you might want to know how to reduce your CGT bill.

First, remember your tax-free allowance. A lot of people spread out their sales of property and assets over tax years to make the most out of theirs and make sure they’re not paying too much.

The main tax relief for property owners who have made a capital gain is private residence relief. However, this only applies if you are selling your main home or if a second property was occupied by a dependent relative. There are a lot of hoops to jump through to qualify for private residence relief.

As such, the main tax relief available for you will be available if the property is a business asset, which may reduce or delay the amount of CGT you pay.

If the purpose of your business is to buy and sell property, you won’t pay CGT when you sell a property. Instead, you pay income tax if you’re a sole trader and corporation tax if you’re a limited company.

Don’t know which is the best way to run your business for tax and other purposes? Read our sole trader versus limited company blog.

Lastly, there is tax relief for furnished holiday lets. We wrote about it extensively in a previous blog, so make sure not to miss out on that if you’re in the ‘staycation’ business.

Accountants for landlords and property developers

As accountants with a flair for tax planning in the property industry, we’re only happy to help you understand the taxes you have to pay and help you maximise your capital allowance claims.

Just get in contact with us today to start down the road to a bright future for you.