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by Ben Luxon October 02, 2019 3 min read

Capital Gains Tax (CGT) tends to creep out of the woodwork and surprise people. In this article, we detail who is liable to pay Capital Gains Tax upon the sale of a property in the UK and how much that tax is likely to be in relation to your earnings.

CGT is applied to any profits made through an investment in assets that appreciates in value over time. It is applicable to things like cars, art and in this scenario, property. 

Broadly speaking, you won’t be required to pay CGT when selling your main home, however, upon the sale of a buy-to-let property or a business premise then you may be required to pay CGT.

Related: How is Rental Income Taxed 

What is CGT?

CGT is generally levied on any profits made through the resale of an asset. What this means is that if you, for example, purchased a property in 2010 for £200,000 and sold it in 2015 for £300,000 you would pay tax on the £100,000 profits garnered in that sale.

tax forms - capital gains tax

Tax rates

Basic-rate taxpayers pay 18% on gains they make when selling residential property, while higher and additional rate taxpayers pay 28%. Bear in mind that any capital gains will be included when working out individuals’ tax rates for the year, so some gains for basic-rate taxpayers will be taxable initially at 18% and 28% thereafter.

Commercial property gains at taxed at 10% and 20% for basic and higher/additional rate taxpayers accordingly.

Annual exemption

Individuals have a CGT annual exemption, meaning gains up to the annual exemption are not taxable. The CGT annual exemption is £12,000 in the current (2019/20) tax year.

What is deductible from the taxable gain?

The following costs can be deducted from the gain to reduce the amount that gets charged to CGT:

  • Costs associated with selling the property - such as estate agent and solicitors’ fees
  • Costs associated with purchasing the property - such as Stamp Duty, estate agents’ fees and solicitors’ fees
  • Improvement and enhancement expenditure

Costs involved with improving or enhancing the property, such as paying for an extension or upgrading the kitchen, can be taken into account when working out the taxable gain.

Maintenance costs and mortgage costs are not deductible from any capital gains, although these can be used to reduce the income tax payable on any rental income.

Read our article on tax deductible expenses from rental income for more information.

What tax reliefs are available?

The main two reliefs available when selling a residential property are Principal Private Residence (PPR) relief and lettings relief.

PPR relief

PPR relief is the relief that enables individuals to sell their homes without having to pay capital gains tax (CGT). In order to claim the relief, the property being sold must be the taxpayer’s main residence.

If a taxpayer sells their home and it was not their main residence for the entire time they owned the property then they may have to pay some CGT on the sale proceeds. This could be the case if, for example, an individual owned two properties and spent most of their time in one rather than the other or if they moved out of their home to develop it. In such cases, CGT is calculated by reference to the proportion of time that the property was not the taxpayers main residence.

Where a property has been an individual’s main residence at some point, the final 18 months of ownership is deemed to be a period of occupation regardless of whether the property was occupied in those final 18 months.

There are additional reliefs available for certain periods where an individual moves out of their home for certain reasons and then return at a later date.

Lettings relief

Where a property qualifies for PPR relief, lettings relief is given after PPR relief where part of the gain remains chargeable due to residential letting during a period of absence. Lettings relief is capped, depending on the amount of capital gain and PPR relief.

Tax changes from April 2020

As announced at Autumn Budget 2018, from April 2020 the government will make changes to PPR and lettings relief:

    • The final period exemption will be reduced from 18 months to 9 months.
    • Lettings relief will be reformed so that it only applies in circumstances where the owner of the property is in “shared-occupancy” with a tenant.

We hope you found this blog interesting! However, we are not financial professionals and as such the information in this blog is intended as general information and not advice. Nothing in this blog should be used as a substitute for competent legal and/or other advice from a licensed professional.

Call TN Accountancy on 01892 576 550 for professional tax advice on your properties.

Email: enquiries@tnaccountancy.co.uk

or visit their website at www.TNaccountancy.co.uk

rental income tax

Ben Luxon

"Ben is an author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks. His love of travelling has taken him to over 10 countries in the last year, where he has sampled the craft beer of them all."


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