Capital Gains Tax

Capital Gains Tax refers to the gain made after selling, giving or exchanging an asset.

Capital Gains Tax is calculated through your tax return and is paid in a landlord’s Self Assessment.  If they do not pay Capital Gains Tax they are likely to be subject to a penalty fine.  Within their tax return landlords must ensure they include calculations on the loss or gain of any assets.

Property

When a landlord sells or disposes of a property they must ensure that they work out the gain or loss.  The different types of property that are liable to Capital Gains Tax include: second homes, rental properties, business premises and land.  If the property has been used for business purposes they may be able to claim for additional Capital Gains Tax reliefs.

Types of Property Used for Business

  • Shops
  • Factories
  • Warehouses
  • A holiday letting in the European Economic Area
  • Farm Buildings
  • Agricultural land

Reliefs

Private Residence Relief

If a landlord were to sell, give or exchange their home the likelihood is they will be entitled to Private Residence Relief.  They will not need to claim for this it will just ensure that they do not have to pay Capital Gains Tax in most cases.

Business Asset Roll-Over Relief

If a property is classed as a business asset (as previously mentioned) they may be entitled to have all or part of their gain suspended if they were to buy another asset for business use.

Gifts Hold-Over Relief

If landlords were to gift an asset their gain can be suspended until completion of the sale of the property.  The likelihood is the person it has been gifted to will have to pay Capital Gains Tax.

If the disposal of the property is more of a trade e.g. developing and improving buildings to sell at a profit the owner could be liable for Income Tax instead of Capital Gains Tax.

What to Report and What Not to Report

It is paramount that any declarations are made to HMRC if there is any Capital Gains Tax to pay as if you sell, gift or exchange an asset someone may make a capital gain or loss.

Some assets are irrelevant to Capital Gains Tax like private cars and personal home.  If these are the type of assets that have been sold, gifted or exchanged then HMRC will not need to be informed as claims for losses on these types of asset are not liable for this tax.

However, if the asset that has been disposed of is liable then they will need to work out any capital gains or losses.  Losses can only be deducted if they are allowable and HMRC have been made aware of them.

For information on how to report a loss visit https://www.gov.uk/capital-gains-tax/losses