Capital gains tax on rental property

Start with the sale price and deduct the selling costs, such as agent and legal fees. Then deduct what you paid for the property, the buying costs (including SDLT and legal fees) and the cost of capital improvements like an extension. What's left is the gain. Take off any losses and your annual exempt amount of £3,000, and the rest is taxed at 18% or 24%, depending on how much of your basic rate band is left.

Each owner is taxed on their own share of the gain. If you and your spouse own a property 50:50, each of you reports half the gain, deducts your own £3,000 annual exempt amount and pays tax at 18% or 24% depending on your own income. That's why joint ownership often reduces the tax on a sale. If the property is owned in unequal shares, the gain follows the beneficial ownership, not just the names on the deeds.

Normally the earlier tax year. For capital gains tax, the date of disposal is the date contracts are exchanged unconditionally, not completion. So a sale that exchanges on 20 March and completes on 20 April usually falls into the tax year ending on 5 April, using that year's rates, exempt amount and basic rate band. The 60-day reporting and payment deadline still runs from completion. Conditional contracts are treated differently.

Yes. The 60-day return is filed through HMRC's online Capital Gains Tax on UK property account, which is separate from your Self Assessment account. Setting it up takes time, so don't leave it until the last week. Your accountant or adviser can report for you through HMRC's agent service. If you're registered for Self Assessment, you also include the sale on your tax return for that year.

HMRC charges automatic late-filing penalties and interest on tax paid late, and further penalties can follow if the return or payment is very late. The 60-day return is separate from your Self Assessment return, so you need to file it even if your accountant will include the sale on your annual return later. If you've already missed it, file and pay as soon as possible and get advice on the figures.

Only if the work was a capital improvement that's still reflected in the property when you sell, such as an extension, a loft conversion or adding a bathroom. Repairs and like-for-like replacements are revenue costs. They're claimed against rental income instead and can't be deducted twice. Keep invoices for all significant work, because you'll need to show what was done and when if HMRC asks.

It can save tax. Transfers between spouses or civil partners who live together are treated as no gain and no loss, so there's no CGT on the transfer itself. Your spouse then sells their share and can use their own £3,000 annual exempt amount and any unused basic rate band at 18%. The transfer must be a genuine, outright gift of a beneficial share, made before contracts are exchanged, and your spouse then owns that share of the proceeds.

Yes. If your spouse takes on part of the mortgage, that debt can count as consideration for SDLT. HMRC can also challenge a transfer that isn't genuine, for example if the proceeds all come back to you under a prior arrangement. Lenders may need to agree to a change of ownership. And a share transferred on paper but not in substance won't work. Talk to us before you instruct the solicitor, not after exchange.

Often it is, if your plans allow. Each tax year gives you a fresh £3,000 annual exempt amount and a fresh basic rate band, so spreading sales across tax years can tax more of your gains at 18%. Exchange date matters, because that's normally the date of disposal. Spreading sales has to be weighed against market conditions, mortgage costs and the rent you'd lose while a property is empty.

Yes. A capital loss is set against gains in the same tax year first, then any unused loss is carried forward to later years. Losses have to be claimed within four years of the end of the tax year of the sale, so report them even if you have no gains yet. Losses on sales to family members or other connected people can usually only be set against gains on disposals to the same person.

Your starting cost is the property's market value at the date of death, usually the value agreed for probate, not what the person who died originally paid. Add the cost of any improvements you've made, deduct your buying and selling costs, and the rest is your gain. If the probate value was low, or the property was never formally valued, get a retrospective valuation before you sell, because HMRC can challenge it.

Only in limited cases. Since 6 April 2020 lettings relief is only available where you lived in the property and let part of it at the same time, for example a lodger or a self-contained part of your home. Where you moved out and let the whole property, lettings relief no longer applies. Where it does apply, it's capped at the lowest of £40,000, the private residence relief due and the gain from letting.

Sometimes. Personal pension contributions paid under relief at source extend your basic rate band by the gross amount paid. Because gains that fit within the basic rate band are taxed at 18% rather than 24%, a bigger band can mean more of the gain is taxed at the lower rate. The saving is modest next to the pension relief itself, and contribution limits apply. Plan it with your financial adviser before the tax year ends.

They're taxed differently. A company pays corporation tax on its gain, at 19% to 25% depending on its profits, but then you pay tax again when you take the money out, usually as dividends. Selling personally means CGT at 18% or 24% with the money in your hands. If you plan to reinvest in more property, keeping proceeds in a company can work well. If you need the cash, personal ownership is often simpler.

Only for property bought before 1 January 2018, and only for inflation up to December 2017. Indexation was frozen for companies at that date, so a property bought in 2010 gets an allowance for 2010 to 2017 but not for later years. Property bought from January 2018 onwards gets no indexation at all. Individuals haven't had indexation allowance on gains for many years.

There's no CGT on death. Your executors and heirs are treated as acquiring the properties at their market value on the date you die, so the gain built up in your lifetime is wiped out for CGT. But the properties are then in your estate for inheritance tax at 40% above the nil-rate bands. Holding until death avoids one tax but can expose the portfolio to a larger one.

You'll need the completion statements for the purchase and the sale, invoices for any improvements, legal and agent fees on both sides, and SDLT paid on purchase. If you inherited the property, you'll need the probate value. If you lived in it, note the dates. If it changed hands between you and your spouse, you'll need the original cost. Missing records can be rebuilt, but it's slower and less certain.