How do you calculate your capital gain on the sale of your investment property?

If you hold a property to rent out and it is not your main residence (ie. an investment property), when you come to sell it, you will usually need to pay capital gains tax (CGT).?The rate of tax you pay is 18% for basic rate taxpayers and 28% for higher rate taxpayers.

Once you have worked out the capital gain, you can deduct the annual CGT allowance from it.?This is ￡6,000 for the tax year 2023/24 (2022/23 it was ￡12,300).?This allowance is doubled for couples who jointly own the investment property, thus, giving an overall tax-free allowance of ￡12,000.

However, it was announced in the Autumn Statement in 2022 that this allowance will be reduced further to ￡3,000 in 2024/25.

So how do you calculate your capital gain on the sale of your investment property?

To start with, you deduct the original cost price from the selling price.?Any costs of buying or selling can also be deducted such as solicitor’s fees, stamp duty and certain improvements that have been made to the property.

You can also offset any losses from the sale of other assets against the gain.?Then, as mentioned above, you can deduct the annual allowance. The capital gain is added to your other income to determine whether you are a basic rate or higher rate taxpayer.

The deadline for CGT on a UK property is 60 days if it was sold on or after 27th October 2021 (prior to this it was 30 days).?The taxpayer would need to complete a residential property return and make a payment on account before this 60-day deadline.?The capital gain and tax are also declared on the taxpayer’s Self-Assessment return and if there is any overpayment then this can be claimed back at this point.

If you require assistance with this or any other accounting or taxation related matter, then please do not hesitate to get in touch.