Capital Gains Tax on buy-to-let properties
If you sell a property that you have rented out, then you have to pay Capital Gains Tax. The taxable amount is the difference between the purchase price and the sale price – so if you bought a property for £150,000 and sell it for £300,000, then you will be charged CGT at up to 28% (the higher rate for residential property gains) on £150,000 less any allowable expenditure.
If you are a higher-rate taxpayer, the bill will be calculated like this:
Less: Tax-free allowance (2019/20): £12,000
= Taxable gain: £138,000
CGT payable (at 28% of £138,000): £38,640
If you are a basic rate taxpayer, you calculate your CGT in this way:
- Work out your total taxable income (i.e. your income minus your income tax personal allowance and other reliefs you are entitled to)
- Work out your total taxable gains
- Deduct your CGT tax-free allowance (£12,000) from your total taxable gains
- Add this amount to your taxable income
- If the amount is within the basic income tax band (£50,000 for 2019/20), you’ll pay 18% CGT. Any amount above £50,001 will be taxable at 28%.
So, if your total taxable income is £25,000, you subtract the £12,000 CGT allowance from your gain of £150,000 – leaving £138,000. You then add the income figure (£25,000) to your gain, making £163,000. You then pay CGT at 18% on the first £25,000 (£4,500) and CGT at 28% on the remaining £113,000 (£31,640). This makes a total CGT bill of £36,140.