Capital gains tax on house sale
- You pay capital gains tax on buy-to-let property.
- If you are a basic rate taxpayer, you pay at that rate.
- You can avoid paying capital gains tax in full if you have lived in the property for any period, and you can reduce the gain by the final 9 months before the sale.
- You need to file your tax return and pay any tax due within 14 days of the sale of the property.
- You don't pay tax on the sale price, only on the gain less allowable costs.
- HMRC do not send you a capital gains tax bill. You must provide a self-assessment.
- If there is more than one beneficial owner, each party must file a tax return.
Capital gains tax (CGT) is declarable to HMRC when you own more than one property and decide to sell one. You don't pay CGT when you sell your Principal Private Residence (PPR).
The capital gain must be declared and paid within 14 days of the sale using a Self Assessment: Capital gains summary SA108 Form.
To work out if you have a tax liability, you need to calculate if you have a gain/profit. You deduct the purchase price, sale and purchase costs, and the capital gains tax allowance. If there is a gain, you pay tax at the applicable rate.
You can reduce the cost if you lived in the buy to let property for any period during your ownership.
What capital gains tax rate is payable on the sale of a house?
| Tax Band | Income Tax Band | Capital Gains Tax Rate (chargeable on profits) |
| Basic rate income tax payer | £0 to £50,270 | 18% |
| Higher rate income tax payer | Over £50,271 | 24% (post 6th March 2024 budget) |
Does the capital gains tax account for if I lived in the property?
Where you have lived in the property as your main residence, then you don't pay capital gains tax for that period. You'll need to keep exact records proving where your main residence was during your ownership.
Most people's main residence is a simple case of where they live. It gets complicated if you are living in more than one location. HMRC have a test they apply to see where you are resident for the benefit of paying no capital gains tax:
- If you are married or in a civil partnership, where does your family spend most of their time?
- If you have children, where do they go to school, and which property is it closer to?
- Which property are you registered to vote at?
- Where do you work, and which property is it closer to?
- How are the properties furnished?
- Which property address do you use for your bank and building societies, credit card companies and by HMRC?
- Where are you registered with your GP and dentist?
- Which property have you registered your car and insured with?
- Which property have you declared as your main residence for your council tax?
If you are linked more to one property than the other, this will be your main residence.
- Get up-to-date property tax advice on SDLT, CGT, IHT, Personal versus partnership versus company structure.
- Free 15-minute initial consultation with a qualified accountant from our panel of tax advisors.
- Ask your tax questions and get guidance on what you can do next.
- If there is some further accountancy work required, then you'll be quoted for this as a separate piece of work with no obligation to purchase.
How do I claim private residence relief?
If you have lived in the property as your principal private residence for any period, then you can claim private residence relief. This is calculated as a proportion of the capital gain. For example:
- Jane bought a property in January 2020, which was her residential property.
- Jane moved out and rented the property from January 2021.
- Jane sold the property in January 2024.
In the example above, Jane is liable to pay capital gains tax because it wasn't always her main residence during her property ownership. Jane owned the property for 48 months, of which 12 months she lived in the property and 36 months she rented the property.
If there was a capital gain of £100,000, you can claim private residence relief on 12 months of the 48 months; 25%. You can then avoid paying the final 9 months. This means you are only liable for 36 months less the 9 months, so 27 months, which is 27/48 = 56% of the £100,000 - £56,000.
Jane will pay CGT on the taxable gain of £56,000 at the prevailing rate.
Does my solicitor file my capital gains tax bill?
Your solicitor doesn't file your capital gains tax bill. You must file your CGT return and pay any tax bill within 14 days of the sale. If you file your tax bill after this time, you'll be liable to pay a penalty and interest on the tax due.
What are allowable costs?
You can deduct costs from your capital gain when selling your buy to let property. The costs aren't limited to your solicitor's legal fees and include:
- What you bought the property for. If you sold for £500,000 but bought for £400,000, you can deduct this cost from the sale price.
- Costs of any improvements. If you paid a builder for an extension, this can be deducted from the gain.
- Conveyancing costs. Legal fees, stamp duty/land registry on purchase, and estate agent costs.
Your taxable gain can be greatly reduced by deducting allowable costs from the gain.
Can I benefit from my wife's unused CGT allowance?
You can further reduce your tax bill by transferring the beneficial interest to your spouse if they have an unused CGT allowance. This can also be advantageous if your spouse has a taxable income that places them as a basic rate taxpayer. For example:
- Scnario 1: Mr Smith is a higher rate taxpayer with a taxable gain of £20,000 after deducting costs and the allowance. Mr Smith has a CGT tax bill of £4,800 (24% of £20,000).
- Scnario 2: Mr Smith assigns 100% of the property to Mrs Smith, who is a basic rate taxpayer. Mrs Smith has a CGT tax bill of £3,600 (18% of £20,000) a saving of £1,200.
A husband and wife can transfer shares between each other for no consideration, known as the "no gain, no loss rule". This means you can transfer your buy to let property to your spouse before you sell for tax planning purposes. Read more - Capital Gains Tax on Property for Married Couples.
You can assign beneficial interest to your spouse via a transfer of equity; however, more commonly, you would use a deed like a Deed of Assignment. We can draft a deed for you for a Fixed Fee of £240 INC VAT.
If you are looking to sell your buy to let property or need help assigning your beneficial interest then please give us a call on 0333 344 3234 (local call charges apply).
How do you pay capital gains tax?
You have only 14 days from the date of completion, so you need to:
- File you Self Assessment: Capital gains summary SA108 Form.
- Pay Capital Gains Tax to HMRC.
You can pay by bank transfer to the details HMRC provide to you within the SA108 Form.
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
