Buy-to-let tax guide: How to cut capital gains tax when you sell

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Capital gains tax – use a simple legal process to double your relief if you’re married.

Capital gains tax (CGT) is only due when you sell your rental property. You pay this on the difference between the prices you bought and sold for, minus any expenses.

Deductible expenses

You can deduct the following from your capital gain:

  • Buying costs. Remember that solicitor’s bill you’ve kept for 20 years? Now you can deduct all your capital expenses: the property purchase price, stamp duty, legal fees, surveys and any improvement work, such as a loft conversion.
  • Selling costs. Likewise, you can deduct the estate agent’s commission, advertising costs and legal fees for the property’s sale.

Capital gains tax allowances

Before you work out CGT, you can also deduct your allowances. For accidental landlords, this includes two generous reliefs because you’ve lived in your home:

  • Annual allowance. Every year, everyone gets their first £11,100 (for 2015/16 and 2016/17) in gains tax-free. To make the most of this, time your sale to be in a tax year when you don’t have other capital gains.
  • Principal private residence relief. You pay no CGT on all the time you’ve lived in the property, plus the last one and a half years. You can extend this for periods when it was uninhabitable because of works, or if your job took you elsewhere. Also, the relief can apply to two properties for overlapping periods, as long as you can prove that you genuinely lived in both and told HMRC which was your main one within two years.
  • Private letting relief. If you let out your former main home, you get up to £40,000 in gains tax free.

Double your relief if you’re married

Married joint owners can claim all three CGT allowances for both spouses. Before you sell, use a simple legal process to transfer ownership between the two of you to maximise your relief. As spouses you won’t pay any tax on such a transfer, but it could save you tens of thousands of pounds in CGT.

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