The Capital Gains Tax (CGT) tax free allowance has now fallen to £3,000 (2024/2025). The policy was announced in the former Chancellor Jeremy Hunt’s first Autumn Statement in 2022. This reduction in the tax free allowance will result in more individuals being subject to the CGT regime. Additionally, most landlords selling their properties are also likely encounter capital gains on residential properties.
In recent times, due to higher interest rates, more regulations, and fewer tax reliefs, many landlords are feeling frustrated and are choosing not to deal with the hassle anymore.
In our region, the average rate of return on residential property is around 5-6%. If you look hard enough, you can still get 5% on a fixed-rate savings account. Many of our clients therefore question why they should deal with the hassle of being a landlord.
But it’s worthwhile remembering investing in a property can provide both annual rental income and the potential for significant capital growth over time. Yes, it can be hard work, but if you have the right agent, they can do the heavy lifting for you.
Before deciding to sell your residential property, it’s crucial to revisit the reasons why you initially purchased it. What was your goal? What was the purpose? Remember, selling the rental property also means dealing with capital gains on residential properties.
On a side note, here’s a link to the Money Supermarket savings rates if you want to compare the current rates on offer.
Sixty Day Reporting
If you are going to sell your property because it is right for you, don’t forget there is the added 60 day reporting. This is an additional complication that many landlords are still not very familiar with.
This basically means that any capital gains on residential properties must be reported to HM Revenue & Customs (HMRC) within 60 days of completion. Additionally, any CGT must be paid within the same period.
There are hefty fines for non-compliance. Also, bear in mind that late payment incurs interest. The interest rate is 2.5% above the base rate so currently it is 7.5%.
This timeframe doesn’t leave you with much room. Most conveyancing solicitors fail to notify the taxpayer about this matter. The reason is that it doesn’t work the same way as stamp duty. If you have a solicitor or conveyancer handling the purchase of your property, they should file the stamp duty return and pay your tax on your behalf.
The capital gains tax, however, requires you to open a UK property account using your own personal government gateway ID. Hence the solicitors don’t get involved.
We are pleased to assist clients with calculating and reporting the Capital Gains Tax (CGT) to HMRC after opening a UK property account. If you require assistance with this, please contact us. Take a look at how we help you feel assured and confident about your tax obligations here.
How to save CGT
There are some tax reliefs available to you if you are due to pay the CGT. You would need to claim these reliefs when completing your 60 day return.
If you are selling a property that was once your home, you may be entitled to Private Residence Relief (PRR). However, the rules for applying PRR can be complex, and depending on your specific circumstances, you may be denied the relief. It is advisable to seek professional advice in this matter.
Remember that before you qualify for this relief, the property in question must have been a genuine main residence at some point. You bear the burden of proof.
There are also other deferral reliefs, such as Enterprise Investment Schemes (EIS) or Seed EIS (SEIS) that are available to you. However, investment in these shares tends to carry some risks.
These government-designed schemes aim to stimulate investments into early-stage companies. Investors receive tax reliefs for the risks they take in backing new businesses.
Most trades can qualify for EIS but some exceptions are listed in this guidance. Some clients with new business ideas set up their own EIS companies and in doing so qualify for the tax relief. Due to the complexity of the schemes and very strict rules it’s always best to seek guidance before taking any steps.
We are here to help. If you have decided to sell your investment property and want to discuss the tax implications, please contact us so we can help you crunch some numbers. Have a look at how we work
If you haven’t decided yet but are considering it, why not talk to your account manager? We can review your goals and determine if keeping your rental property still aligns with your ambitions.