Selling a buy-to-let property? How to reduce your capital gains tax bill

Earlier this year, the government announced a significant reduction in capital gains tax (CGT). While many investors celebrated the new tax break, private landlords were unable to, due to the exemption of residential property. This means property managers who are higher rate taxpayers still have to pay 28% CGT when they sell their properties, compared to 20% for investors disposing of other assets. There are steps, however, that you can take to reduce your tax bill.

Capital gains tax

CGT applies when you sell a buy-to-let property and make a profit above the annual allowance – which is currently £11,100. It’s just the profit you make that’s taxed, not the total amount you receive from the sale. 

CGT only applies to properties that you own above and beyond your principle home. If you only have one property and this is considered to be your primary residence, you won’t be required to pay CGT. You’ll need to provide proof that you lived there.

If you’re a small investor and have dreams of developing a property, moving into your renovation project and making it your primary home while you carry out the work could help you cut down costs when it comes to selling.

Private residence relief

If you’ve ever owned a property that you’ve then gone on to rent out and eventually sold, you could be entitled to private residence relief, reducing your CGT. This offers landlords in these circumstances a tax break on the last 18 months of ownership, as long as at some point in its history the property was their only or main residence.

Lettings relief

This is another form of CGT relief that can be claimed if the property has at some point been your only or main residence. This will equal the lowest of either:

  • stamp duty – for more information on this, have a read through our downloadable guide to stamp duty and SDLT
  • the amount you got in private residence relief;
  • the chargeable gain you made from letting your home; or
  • £40,000.

 

Offsetting fees

Substantial savings can be made simply by offsetting costs associated with a buy-to-let properties, such as:

If you’re ever in doubt about what you can and can’t claim for, contact your accountant or HMRC for advice.