Rental Property Sale – What Are My Tax Liabilities?Written on February 27, 2019 by Kirk Rice LLP
The Question:
I have a couple of rental properties that I have owned for many years. I am thinking about selling them within the next few years but I am not clear on what tax liabilities will arise. Please advise on what the tax implications for rental property sale could be.
Kirk Rice LLP answers:
The type of tax liability in a rental property sale that needs to be considered here is capital gains tax. A capital gain in simple terms is the difference between the price you sell the property for, less the original purchase price. This will give you the basic capital gain (or potentially a loss) from which other expenses that were incurred can be deducted, such as stamp duty land tax, legal and estate agent fees.
Once the gain is established the next step is to consider whether you would qualify for any tax reliefs or allowances. The availability of reliefs will depend upon the use the property during your period of ownership. If it has been purely a rental property then no reliefs will be available, although you should be entitled to the annual capital gains tax allowance of £11,700 (2018/19).
If the property has ever been your main residence then the capital gain will need to be time apportioned between those periods when it was your home and those when it was a rental property. The apportioned gain relating to when the property was your main residence will be exempt from tax. There are other reliefs in these circumstances relating to the final 18 months of ownership which is deemed to be a period of main residence, and, also lettings relief.
The government do have plans to reduce the deemed final period of ownership from 18 months to 9 months and restrict the lettings relief from 6 April 2020 and so, if you believe you will be affected by those changes, you may wish to consider accelerating your property sales to before that date.
The rate of capital gains tax you pay will depend on whether you are a basic rate or higher rate tax payer. The basic rate is 18% and the higher rate is 28%.
Capital gains for a rental property sale are reported on your annual tax return and any tax due is currently payable on 31 January following the end of the tax year. However, from 6 April 2020, the government are introducing a system whereby you will be required to make a payment on account of the tax due within 30 days of disposal. As this is a very short period of time estimates of values and apportionments will be permissible. These estimates will be superseded by the normal tax return once that has been submitted.
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If you would like to discuss this the tax implications of a rental property sale further, please email info@kirkrice.co.uk and we will arrange for one of our Financial Planners to get in touch.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.
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