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What would changes to Capital Gains tax mean for you?

Our handy guide for landlords and investors

Capital Gains Tax is an important aspect to understand as part of any financial planning equation based around property - and it’s in the spotlight more than ever.

Rumours surrounding Capital Gains Tax changes have been swirling around the press for a few weeks now. The Chancellor’s spending review which highlighted the current economic emergency will not have done anything to allay those. It remains one potential way of helping to reduce the national debt which has soared to record levels, due to the Covid-19 pandemic.

Capital Gains Tax impacts landlords and property investors as it applies to the profits made when second homes or rental properties are sold. An increase in Capital Gains Tax could have the potential to raise the tax paid by landlords – but it would be wise to seek advice to understand what that means for an individual’s specific circumstances.

Some media commentary suggests that any rise in tax may be offset in part if relief was to be applied on inflationary gains – and that this may even reduce the amount of tax paid. As always, taking a rounded view and looking at your overall financial position and objectives for letting a property and being sure of what any tax changes would mean for you specifically would be worthwhile.

Whatever happens next, it is worth understanding how Capital Gains Tax may affect you and to seek appropriate advice as part of any property decision making process.

What is the current Capital Gains tax?

The tax applies to the profit made on a property you sell - usually, this means the difference between the purchase price and the sale price. It’s not quite that simple. 

For a start, there is an allowance that can be applied to reduce the tax impact. For tax year 2020/21, the allowance is £12,300 for an individual and £24,600 for a couple (married or in a civil partnership).

In addition, you can also deduct from your profit (hence reducing your tax liability) certain fees associated with property transactions such as estate agency and solicitor fees. Not only that, but property improvement costs during your ownership can also be deducted from your profits. 

There are also circumstances in which lettings relief may be applied - these changed for the current tax year and it would be worth making sure how these apply to you now.

Capital Gains tax reporting

The online self-assessment deadline that passed on 31st January 2021 isn't the only reporting instance due for Capital Gains Tax. A Capital Gains Tax return - if applicable - must also be submitted to HMRC within 30 days of a sale and the tax due paid within the same 30 day period. 

Professional advice

We have produced a handy guide to tax, as we know it’s important for landlords to understand how it impacts their property business. The guide gives an overview of what tax you need to be aware of. 

Please note: This information is meant for guidance purposes only and should not be considered a substitution for professional advice. We recommend speaking to a trained tax professional, such as an accountant or HMRC. Rates quoted are applicable for tax year 2020/21. Information correct at the time of publishing in October 2020.

Download the Landlord Tax Guide

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