If you’re a landlord with a property you’re planning on offloading, or you have recently inherited a property or are selling a business with premises, it’s likely you’ve posed the question, how much is Capital Gains Tax on a property when selling? In this post we’ll explore the subject of Capital Gains Tax, how much it is charged at, the scenarios under which it is payable, and a few mitigation suggestions to help reduce the amount payable where possible.

What is Capital Gains Tax?

Capital Gains Tax (CGT) is charged when an asset is sold at a higher value than when it was purchased.

CGT is not usually charged when you sell your main or only home, as it is subject to ‘Private Residence Relief’.

However, CGT is normally payable when you’re selling a buy to let property or a second home.

When is Capital Gains Tax chargeable on a property?

In some situations, it may be necessary to pay Capital Gains Tax when you sell your main or only home. If any of the following circumstances apply, this could be the case:

• The property includes 5,000 square metres or more of land or additional buildings
• You’ve been sub-letting part of it to more than one lodger
• Part of the property is used exclusively as business premises
• You purchased the property with the sole intention of making a profit (for example, as a property developer)
• You own another property that could be considered your main residence

It is not uncommon for some of these circumstances to be disputed, and they can be interpreted in different ways. For this reason, it is essential to seek professional advice from a tax specialist to confirm your individual position.

If you are selling a property other than your main home, then CGT will apply and will be chargeable on any gain in its value above the appropriate CGT threshold, less any deductions you are entitled to. This includes buy to let property that has increased in value by more than the CGT threshold, as well as overseas property (although you may be able to claim relief if you are taxed in both the country where the property is located, and the UK).

Is Capital Gains Tax payable on inherited or gifted property?

If you gift a property to your spouse or civil partner, or to a registered charity, Capital Gains Tax will not apply.

If you inherit a property, once you have paid any Inheritance Tax (IHT) due, then there won’t be any CGT liability if you keep the property. However, if you go on to sell it, then CGT will apply and the gain will be calculated from the date you inherited the property.

If you sell a property that was occupied by a dependent relative, however, then the CGT liability may not apply. Again, professional advice is vital to ensure you are clear on what charges you will be liable for in your particular situation.

How much is Capital Gains Tax on a property?

CGT rates vary depending on a variety of factors. These include your income, and the value of the gain.

Higher and additional rate taxpayers pay:

• 24% on gains from residential property (this is as of 6 April 2024 when the rate was reduced from 28%)
• 28% on gains from ‘carried interest’ if you manage an investment fund
• 20% on gains from other chargeable assets

Basic rate taxpayers pay CGT at a rate based on the size of the gain, their taxable income, and depending whether the gain is from residential property or other assets.

To work out your CGT liability:

• Calculate how much taxable income you have (your income less your Personal Allowance and any other Income Tax reliefs to which you are entitled)
• Work out your total taxable gains
• Deduct your tax-free allowance from your total taxable gains

If the resulting amount is within the basic Income Tax band, you will pay 10% on your gains, or 18% on residential property and carried interest.

You will pay 20% on any amount above the basic tax rate, or 24% on residential property and 28% on carried interest.

Gains from residential property and other assets

If you have gains from both residential property and other assets, then it is possible to use your tax-free allowance against the gains that would be charged at the highest rates, for example where you would be charged 24% or 28%.

It is important to note that these percentages are charged only on the gains, rather than the full sale price of a property.

Trustees, personal representatives and businesses

How much is Capital Gains Tax on a property sale for trustees, personal representatives and businesses?

Trustees or personal representatives of someone who has died will pay:

• 24% on residential property
• 20% on other chargeable assets

Just as an aside, personal representatives of someone who has died will pay 28% on carried interest.

If you are a sole trader or partnership and your gains qualify for Business Asset Disposal Relief, then your CGT liability will drop to 10%.

What is Business Asset Disposal Relief?

It may be possible to reduce your Capital Gains Tax liability when selling (or ‘disposing of’) all or part of your business.

With Business Asset Disposal relief, you will pay 10% tax on all gains on qualifying assets, rather than the higher rates.

Business Asset Disposal Relief, formerly called Entrepreneur’s Relief before 6 April 2020, has certain conditions.

To qualify, both of the following must apply for a minimum of two years up to the date you sell your business:

• You are a sole trader or partner in a business
• You have owned the business for a minimum of two years

If you are closing your business rather than selling it, the same conditions apply, and you must also dispose of your business assets within three years in order to qualify for the relief.

How to reduce Capital Gains Tax on a property?

Everyone has a Capital Gains tax-free allowance. Currently this is £3,000 for property, and £1,500 for trusts.

Couples with jointly owned assets are able to combine their CGT tax-free allowances, doubling the allowable gain before paying CGT.

It is important to be aware that you are not allowed to carry over any unused CGT tax-free allowance to the next year. So it is a case of ‘use it or lose it’.

As mentioned, CGT is payable on the gains from the sale of a property, rather than the sale price.

Depending on your circumstances, there are various ways in which you can reduce or even wipe out your CGT bill altogether.

Deduct your buying and selling costs

You can deduct certain costs when calculating your Capital Gains Tax bill. These may include:

• Estate agent’s commission
• Stamp Duty Land Tax
• Conveyancing fees
• Asset improvement costs, e.g. the cost to add an extension

The costs associated with the maintenance and upkeep of a property are not considered deductible, however, and neither is any interest paid on finance used to purchase the property.

Consider joint ownership with your spouse or civil partner

As mentioned, you are able to combine your CGT tax-free allowance with that of your spouse or civil partner. It may therefore be worth considering putting your property in joint names if it’s currently only in your sole name.

Use the CGT tax bands to your advantage

As discussed, basic rate taxpayers pay lower rates of CGT on property. Therefore, if you are higher-rated and your spouse or civil partner isn’t, it may be possible to reduce your Capital Gains Tax bill by transferring all or part of the property into their name.

Again, specialist financial advice is vital to make sure you are doing the right thing.

Offset losses you’ve made when selling other assets

If you make a loss, you can report it on a chargeable asset to HMRC to reduce your total taxable gains.

Reporting a loss results in the amount being deducted from the gains you made in the same tax year. If your total taxable gain remains above the tax-free allowance, you can deduct unused losses from previous tax years. If this results in a reduction in your gain to the tax-free allowance, then you can carry forward the remaining losses to a future tax year.

To report a loss, you should include it on your tax return. If you’ve never made a gain, and are not registered for Self-Assessment, then you can write to HMRC instead.

It is not necessary to report losses immediately. You are able to claim up to four years after the end of the tax year during which you disposed of the asset in question.

It is not possible to claim losses when:

• Gifting or selling your property to a spouse or civil partner
• Gifting, selling or disposing of an asset to a family member, connected person or business partner, unless you are offsetting a gain from the same person

According to HMRC, a ‘connected person’ could be:

• Siblings, parents, grandparents, and children and grandchildren and their husbands, wives or civil partners
• Siblings, parents, grandparents and children and grandchildren of a spouse or civil partner and their husbands, wives or civil partners
• Business partners
• A company under your control
• Trustees where you are the ‘settlor’, or where someone connected to you is

It is very important to seek professional tax advice when dealing with losses to ensure everything works in your best interests.

Be careful with timing

If you have already made use of your CGT tax-free allowance for a particular tax year, you may wish to think about putting back the sale of the property to the next tax year.

Nominate the property as your main residence

If you have a property portfolio and wish to sell one of the properties, you may be able to reduce or get rid of the CGT bill by nominating the property you wish to sell as your main residence. However, there are strict rules surrounding this, so again, professional advice is vital.

When is Capital Gains Tax payable?

If you have made capital gains during a particular tax year, you should submit a tax return if you are not already doing so. You must also report and pay any CGT due on UK residential property within 60 days of selling it. Failure to do so may result in a penalty and chargeable interest.

Rent your property with complete reassurance with City Borough Housing

Now you know the answer to the question, how much is Capital Gains Tax on a property, you may decide to retain your property and rent it out, or you may have other properties you are letting.

If this is the case, you may find it advantageous to use a guaranteed rent scheme.

Landlords find guaranteed rent schemes valuable, not just because they ensure the rent is paid every month come what may, even if the property is untenanted or the tenants are not paying their rent. But also because they can incorporate a property management service.

At City Borough Housing, our all-in scheme covers maintenance and repairs, everyday tenant liaison, regular property inspections and tenant sourcing and referencing. Included in this package are the costs of maintenance and repairs, together with interim property inspections.

We also undertake to return the property at the end of the agreement in its pre-let condition, allowing for fair wear and tear.

To find out more about how our guaranteed rent scheme works, and to request your free, no-obligation property valuation, please get in touch.