How landlords should report Capital Gains Tax

Capital Gains Tax (CGT) is a tax on the profit you make when you sell (“dispose of”) something you owned (an “asset”) which has increased in value. You’re not taxed on how much you receive, just the gain (i.e. the difference between your buying and selling prices), accounting for any allowances or reliefs.

Your car aside, CGT is payable when most personal possessions worth £6,000 or more are sold. These are called “chargeable assets” and they include property, but not your main home (unless you’ve let it out, used it for business or it’s very big). Capital Gains Tax can also be payable on business assets and shares (ISAs or PEPs are not subject to CGT).

If you’re a landlord who plans to sell off one or more of your rental properties, you should know how much Capital Gains Tax is payable, what you can do to minimise your liability and how to report for CGT.

Need to know! You may have to pay CGT if you’re domiciled in the UK but sell an overseas property.

CAPITAL GAINS TAX: A FEW BASICS

You get a CGT tax-free allowance (“Annual Exempt Amount”) of £6,000 and you only pay Capital Gains Tax on gains above this amount. You may also be able to claim reliefs on some assets, while losses may be deductible, too. Both can significantly reduce the amount of CGT you pay.

Capital Gains Tax is not payable on assets you gift or sell to your spouse or civil partner (providing you’re not separated and you’ve lived together in that tax year, but you cannot gift assets to their business to sell).

So, what is the Capital Gains Tax rate? It depends on the type and value of the gain, as well as your Income Tax rate. If you’re a higher (i.e. taxable income £37,701 to £125,140) or additional rate taxpayer (i.e. more than £125,140) you’ll pay 28% on your gains from residential property sales (20% on other chargeable assets).

If you’re a basic rate Income Taxpayer:

1. Work out your taxable income (i.e. your income minus your Personal Allowance and any other Income Tax reliefs you can claim).
2. Then work out your total taxable gains – the difference between the cost price and sale price of the asset (s).
3. Take away your CGT tax-free allowance (i.e. £6,000) from your total taxable gains.
4. Add this to your taxable income.
5. If this figure is within the basic Income Tax band (i.e. taxable income £12,571 to £37,700), Capital Gains Tax of 18% is payable on your property gains (10% on other chargeable assets).
6. You’ll pay 28% Capital Gains Tax on residential property (20% on other chargeable assets) on any amount above the basic tax rate.

*Income Tax bands are different in Scotland.

Need to know! If you dispose of an asset, you jointly own, Capital Gains Tax is payable on your share of the gain.  

HOW TO REPORT CAPITAL GAINS TAX

Landlords have to report and pay any CGT due on UK residential property using a Capital Gains Tax on UK property account – within 30 days of selling it (there can be a penalty and interest payments if you don’t).

To use this service, you’ll need a Government Gateway user ID and password. If you do not have a user ID, you can create one. You can contact HMRC if you need help accessing the service.

You’ll need the:

• full property address and postcode
• date you became the property owner
• date you exchanged contracts when you were selling or disposing of the property
• date you stopped being the property’s owner (i.e. the completion date)
• value of the property when it became yours
• value of the property when you disposed of it
• costs of buying, selling or making improvements to the property
• details of any tax reliefs, allowances or exemptions you can claim
• property type, if you’re a non-resident.

Once your account is up and running you can sign in whenever you need to report Capital Gains Tax on UK property or to view any returns you’ve already submitted. The rules are different if you need to tell HMRC about Capital Gains Tax on UK property or land if you’re non-resident (i.e. you’re domiciled overseas). 

If you have other capital gains to report, which haven’t come from residential property you’ve sold in the UK since 6 April 2020, you can use the ‘real time’ Capital Gains Tax service if you know what you owe (although you’ll need to sign in via Government Gateway).

Alternatively, you can report your (non-property) gains in a Self Assessment tax return in the tax year after you disposed of the asset. After HMRC has received your Self Assessment tax return it will tell you how much you owe in Capital Gains Tax, how to pay and by when.

Need to know! It can be wise to seek tailored professional advice from a tax expert before selling a property, so that you can minimise your CGT liability.

Watch our video on how to report capital gains using GoSimpleTax

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.