Capital gains tax on buy-to-let property has different tax rates than income tax.
Here, the basic rate is 18%, with both higher rate and additional rate taxpayers paying 28% on the gains they make when selling a property.
You will pay this tax on the profit you make rather than the selling price of the property. You can also deduct any expenditure linked to selling the house, like broker fees.
The tax will need to be paid by submitting a “residential property return” within 30 days of completing the sale.
Interestingly, suppose you make a loss on a property. In that case, you can offset it when selling any other assets, which are carried forward indefinitely.
For example, let’s say you’re a portfolio landlord with multiple properties.
Upon selling one of your assets, you make a £50,000 loss. This 50k loss will increase the tax-free gain you make when selling another one of your properties.
Like income tax, you claim your losses through a self-assessment tax return. You will need to make this claim within four years of making the loss.
So, let’s take a look at a practical example.
You’re selling a buy-to-let home for £250,000, after initially purchasing the property 15 years ago for £120,000.
You earned £30,000 in income this year.
Upon the original purchase, you paid around £1,000 in stamp duty, along with £1,500 in solicitor fees.
Now that you’re selling, you pay about £3,000 in both solicitor and estate agent fees.
So, you’re earning a profit of around £130,000 on the sale of your asset. After deducing the extra fees, this comes down to £124,500.
On top of this, you can use your capital tax allowance of £12,300. That means capital gains tax will apply to the leftover £112,200.
With this in mind, you’ll pay 18% of the basic rate on £20,270 of this gain. That’s because, while the higher rate threshold is £50,270, you’ve used £30,000 of that on your income.
Then you will pay 28%, the higher rate, on the remaining total, which comes to £91,930.
Overall, you will pay about £29,388 in capital gains tax on buy-to-let property.
Buy-to-Let Tax Relief: Capital Gains Tax on Buy-to-Let Property
Again, there are ways to gain buy to let tax relief on your capital gains payments.
- Losses made upon the sale of a property
- Solicitor fees involved with the selling process
- Estate agent fees involved with the selling process
- The expenditure involved with advertising the property for sale
- Stamp duty land tax
Aside from this, there’s also tax relief available. For instance, if the property you are selling was previously a main residence, the gain may be reduced.
It’s also important to note that you can’t deduct any costs linked with the general upkeep of a property and can’t deduct any mortgage interest.