Capital Gains Tax Computation for Landlords

Capital gains tax computation for landlords

Did you just sell your property or planning to sell your property? UK Property Accountants is here to help you in computing the capital gains tax. Capital gains tax computation is not just adding and deducting few numbers. It is more about reviewing your situation and claiming the relevant capital gains tax reliefs and expenses to reduce your overall tax bill. At UK Property Accountants, we provide guarantee of specialist tax advice for your capital gains tax computation.

How is Landlords’ Capital Gains computed?

Capital gains is calculated by deducting cost of the property from the net sale proceeds. Net sale proceeds mean selling price less selling costs such as agent’s fees, legal fees, etc. If you sold your house for £300,000 and incurred agent fees & legal fees of £4,000 for the sale, your net sale proceeds will be £296,000.

In the costs of the property, you can include the original purchase price, other costs incurred for the purchase such as stamp duty & legal fees and costs of improvement of the property during your ownership such as extension work on the property. For example, you purchased a house for £150,000, paid stamp duty & legal fees of £3,000 for the purchase and incurred capital refurbishment expenditure of £20,000 during your ownership, your total costs will be £173,000.

The capital gains on this sale will be £123,000 (Net sale proceeds £296,000 less total costs of £173,000). As you will also get £11,700 capital gains annual exemption, your taxable capital gains will be only £111,300 in this example subject to any capital gains reliefs applicable to you.

In most of the cases, the computation will not be as straightforward as in the above example because of specific tax treatment of various items in the capital gains tax computation. So, landlords are advised to seek advice from property tax experts for capital gains tax computation.

What are the rates of Capital gains tax for landlords?

The rates of capital gains tax is different to residential property and commercial property. On residential property, the rates are 18% (basic rate) & 28% (higher rate) while on the commercial property, the rates are 10% (basic rate) & 20% (higher rate).

Refer to our detailed guide on capital gains tax for further details.

What is the deadline to pay capital gains tax?

The capital gains tax will be due on 31 January following the tax year. For example, if you sell a property on 10 May 2018, this falls in the tax year 2018/19, and the capital gains tax is payable on 31 January 2020.

Are there any reliefs on capital gains for landlords?

Yes, there are many capital gains tax reliefs available which may reduce your tax bill significantly. You will get a capital gains exemption of £11,700 for each tax year. For details, refer guidance by HMRC on this. Besides this, there are many types of capital gains tax reliefs which may be applicable to you:

  • Principal private residence (PPR) relief
  • Lettings relief
  • Gift relief
  • Rollover relief
  • Entrepreneurs’ relief
  • Incorporation relief
  • EIS deferral relief
  • SEIS reinvestment relief
  • Reliefs for Non-resident landlords

The relief applicable to you will depend upon your specific situation. Contact us to find out if any of these or any other reliefs available to you.

Are there any other tax planning opportunities for Landlords?

There are many tax planning opportunities available to landlords to save capital gains tax. However, most of these planning needs to be done before you put the property into the market. So, it is essential to seek advice from property tax expert when you are thinking about selling your property.

For example, you can transfer a part of your property to your spouse before starting the sale process to get additional £11,700 annual exemption. For further details, read our article on 'tax on jointly owned properties'. This is just one example, and there are a lot of other tax planning opportunities which depends on your specific situation.

Contact us to find out what are planning opportunities available to you.