Everything You Need To Know In 2023

Capital Gains Tax
on Buy to Let

Capital Gains Tax Complete Guide

One of the best parts of property investment is getting a big cash pay out after seeing your rental property increase in value.

But unfortunately, this profit earned is subject to tax. Capital gains tax on buy to let is one of the most important taxes you need to know about when selling buy to let property.

You can find everything you need to know about capital gains tax on buy to let property UK by reading this quick and beginner friendly guide.

Topics include:

  • What is Capital Gains Tax?
  • Who Pays Capital Gains Tax?
  • How Do You Calculate Capital Gains Tax on Buy to Let Property?
  • What is the Capital Gains Tax Allowance in 2023?
  • Capital Gains Tax Relief on Buy to Let Properties
  • Capital Gains Tax Rate on Buy to Let Property

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Capital Gains Tax on Buy to Let Property Calculator

Looking to calculate capital gains tax on buy to let property?

Use our capital gains tax on buy to let property calculator below to work out what you owe in 2021/22.

What Are Capital Gains?

Capital gains, otherwise known as capital appreciation or capital growth, is the profit earned upon the sale of a property in the UK.

For instance, let’s say you purchased a property for £100,000 in 2015 and sold the property in 2023 for £250,000. This means you would have earned £150,000 in capital gains.

Are you interested in buy to let residential mortgages? Check out our complete 2023 guide.

What is Capital Gains Tax on Selling Buy to Let Property?

Capital gains tax is a tax paid on the profit earned from the sale of a property in the UK.

Who Pays Capital Gains Tax?

Those selling a second home will have a capital gains tax bill if they earn a profit on the sale of their property.

You will pay capital gains tax if you sell:

  • A dwelling house, including a house, apartment, houseboat, or fixed caravan.
  • Part of a dwelling house.
  • Part of the garden attached to your dwelling house.

However, those who are selling their main residence won’t pay capital gains tax, which is known as private residence relief.

Follow the link to learn more about private residence relief and how you can claim private residence relief.

Are you looking to buy property with a family business? View our complete guide.

Do Landlords Pay Capital Gains Tax on Buy to Let Property?

Yes, landlords selling a rental property will be liable to pay capital gains tax on the profit earned upon the sale.

Your capital gains tax bill will change depending on the profit you earned, potential capital gains tax relief, your capital gains tax allowance, and what tax bracket you’re in.

❗Reminder: You cannot live in your buy to let property – view our guide for more details.

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Questions & Answers.

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If the buy to let property is a second home, you will have to pay capital gains as you cannot claim private residence relief.

While this is the case, you can reduce your total tax bill by including expenses, using your tax allowance, and factoring in any losses made when selling other assets.

Yes, you need to pay tax on a buy to let property if it’s your second home. You can claim private residence relief when selling your main residence, but this doesn’t extend to rental property.

You can reduce capital gains tax on buy to let property by factoring in expenses, your CGT tax allowance, and any losses you made when selling other assets.

Types of expenses include stamp duty, legal fees, and value-adding construction like an extension.

To learn more about reducing your tax bill, be sure to see financial advice and talk to a financial expert.

Announced in the Autumn Budget 2021, CGT rules changed for landlords and home sellers.

In this latest news, new rules state that you now have 60 days (up from 30) to report and pay CGT after selling or disposing of your property.

This came into effect on the 27 October 2021, with you submitting a residential property return and making a payment.

For properties purchased between 6 April 2020 and 26 October 2021, you will have 30 days to pay capital gains tax CGT.

Alongside the personal allowance for taxpayers, landlords selling rental property can also claim tax relief to reduce their tax bill.

You can deduct any costs involved in the buying and selling process of your residential property.

This can include:

  • Stamp duty fees
  • Broker fees
  • Estate agent fees
  • The cost of improvements made to your home including potential extensions or conversions.

You can also get relief if you’ve made any losses while selling other assets, which is something that can be carried forward indefinitely.

For instance, let’s say you have a property portfolio and made a loss of £50,000 when selling a property.

You can then claim this loss on your self-assessment tax return for up to four years afterwards.

Capital Gains Tax Rates on Rental Property in 2023

In the UK, your capital gains tax bill will depend on what tax bracket you fall in.

This tax bracket depends on the income you earn, but remember that capital gains are included in your earned income and may push you into higher tax brackets.

The current capital gains tax rate in 2021/22 is:

As you can see from the table, basic rate taxpayers will pay 18% on capital gains when selling property, while higher rate taxpayers and additional rate taxpayers will pay 28%.

How Do You Calculate Capital Gains on a Buy to Let Property?

To work out how much capital gains tax you will pay, you need to calculate the profit on your sold property.

You can do this by subtracting the original purchase price of your property by the sold price of your home.

For example, if you bought a property for £150,000, but sold the property for £300,000, you will have a capital gain of £150,000.

£300,000 – £150,000 = £150,000

What is the Capital Gains Tax Allowance in 2022?

In 2020/21, all UK taxpayers have a capital gains tax free allowance of £12,300 per person. This means you won’t pay tax on the first £12,300 of profit you earn.

If you co-own your buy to let rental property with a spouse, you can combine your personal allowance up to £24,600.

It should be noted you cannot carry your tax free allowance over to the next tax year.

Interested in buy to let property insurance? View our complete guide.

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