Selling a second property in the UK involves understanding the Capital Gains Tax (CGT) implications to ensure compliance and effective financial planning. As of 1st April 2025, several changes to CGT rates and allowances will affected how much tax you may owe upon disposal of such properties.
Understanding Capital Gains Tax on Second Properties
When you sell a property that isn’t your main residence, such as a second home or a buy-to-let investment, you may be liable to pay CGT on the profit (gain) you make from the sale. This gain is calculated by deducting the property’s purchase price and allowable expenses (like stamp duty, legal fees, and certain improvement costs) from the selling price.
CGT Rates Applicable from 1st April 2025
The UK government announced changes to CGT rates in the Autumn Budget 2024, which took effect on 30th October 2024. These changes standardised the CGT rates for residential property disposals across different taxpayer bands. As of 1st April 2025, the applicable rates are:
• Basic Rate Taxpayers: 18% on gains from residential property.
• Higher and Additional Rate Taxpayers: 24% on gains from residential property.
These rates apply uniformly, simplifying the previous structure where non-residential property gains were taxed differently.
Annual Exempt Amount
For the tax year 2024/25, the annual CGT allowance is set at £3,000. This means you can make gains up to this amount without incurring any CGT liability. Married couples or civil partners who jointly own a property can combine their allowances, effectively allowing a tax-free gain of up to £6,000. It’s important to note that this allowance cannot be carried forward; if unused within the tax year, it is lost.
Calculating Your CGT Liability
To estimate the CGT payable upon selling your second property:
1. Determine the Gain: Subtract the purchase price and any allowable expenses from the selling price.
2. Apply the Annual Exempt Amount: Deduct your annual CGT allowance from the gain.
3. Assess Your Income Tax Band: Add the remaining gain to your taxable income to determine if it falls within the basic or higher rate tax band.
4. Calculate the Tax: Apply the appropriate CGT rate (18% or 24%) to the gain based on your tax band.
Reporting and Paying CGT
If you sell a UK residential property on or after 6th April 2020, you must report and pay any CGT due within 60 days of the completion date. Failure to meet this deadline may result in interest and penalties.
Key Takeaways
• CGT rates for residential property disposals are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers as of 1st April 2025.
• The annual CGT allowance is £3,000 per individual for the 2024/25 tax year.
• Gains must be reported, and any tax due paid within 60 days of property sale completion.
Navigating the complexities of property disposal and associated tax obligations can be challenging. For personalised advice tailored to your specific circumstances, feel free to contact us. We’re here to assist you in making informed decisions and ensuring compliance with current tax regulations.
