Understanding Taxes When Buying and Selling at Property Auctions

Ruban Selvanayagam from Property Solvers Auctions runs through the principal tax liabilities that auction buyers and sellers need to be aware of.

Auctions remain one of the prominent ways of accessing competitively priced properties, buildings and land / development sites that typically fall outside of the remit of the mainstream buyers market. Indeed, through our own auction house, we are typically selling stock at between 80% and 85% of the genuine open market value (not to mention a range of opportunities to add value).

Yet, whilst investors can benefit from "day one" (or built-in) equity and property owners can achieve a significantly faster sale relative to what's possible through instructing an estate agent (private treaty), it's crucial to enter into the auction transaction process with a clear idea of what the current and future tax liabilities will be.

Indeed, with the current anti-landlord and property investor sentiment prevailing, it's arguably never been more important to get to grips with taxation and how liabilities can be (legally) minimised – particularly due to the legal-binding commitments involved. Below, I run through the key taxes that need to be managed well ahead of bidding or putting your property up for auction.

Disclaimer: Please note that I (Ruban Selvanayagam) am not an accountant, tax or financial advisor and strongly urge readers to seek suitably qualified tax advice before making any auction purchase or sale decisions.

Auction Property Taxes as a Buyer

Stamp Duty Land Tax (SDLT)

The most punitive tax that most auction buyers (who, by and large, are individuals or companies acquiring additional second residential properties) will incur is Stamp Duty Land Tax (SDLT). This addition to acquisition costs was increased under Chancellor Rachel Reeves' first budget from 3 to 5 percentage points above the standard residential rates of SDLT.

The objective, according to the Gov.uk website, is to "disincentivise the acquisition of second homes and buy-to-let properties, freeing up housing stock for main home and first-time buyers – seemingly forgetting the ever-growing shortage of decent rental properties across the UK(!)

In addition to increased trading below the minimum ￡40,000 threshold (common to find such stock in the north and north-east), the result is that auction buyers are taking a much more cautious approach incorporating what is a significant cost. More investors (albeit often outside the scope of auctions) are also on the lookout for properties held in "corporate wrappers" rather than buying the properties themselves – bringing the SDLT liability to 0.5%. Subject to lower rates of CGT, commercial and mixed-use properties are also likely to increase in popularity at auction.

It's also worth pointing out that modern method of auction buyers will also have to pay stamp duty on the net purchase price – i.e. the cost of the property plus the reservation fee (typically payable to the auctioneer at the fall of the hammer).

The other, somewhat notable change - particularly for developers, buy to sell and (to a lesser degree) auction traders is that the starting SDLT rate will be reduced to ￡125,000 from 1st April 2025. The first-time buyer discount threshold will also be reduced from ￡425,000 to ￡300,000.

Corporation Tax

Since the phased rollout of Section 24 of the Finance Act 2015 (very unlikely to be reversed), the predominant acquisition strategy through auction has been through Limited company structures.

The rate of Corporation Tax you will pay depends on how much profit (through trading or net rental income) your property investment and/or trading company earns annually. The main rate for non-ring fenced profits stands at 25% for profits above ￡250,000. The lower rate of 19% applies to companies with profits of ￡50,000 or less. If the company's profits are between ￡50,000 and ￡250,000 the main rate of tax will be due, reduced by a marginal relief (i.e. a gradual increase in the effective Corporation Tax rate).

Be sure to work with an accountant to minimise your tax liability by claiming legitimate expenses that you can offset against your gross corporate tax liability.

Income Tax

If you own the properties you buy at auction in your personal (individual) name, you will be liable to income tax. There have been no changes to rates or thresholds for the 2025/26 tax year.

As mentioned above, Section 24 will apply to your annual tax calculations meaning that you will not be able to claim 100% income tax relief on mortgage finance costs. Income tax is therefore effectively calculated on property-related earnings before mortgage interest payments. A credit of 20% (or equivalent to the basic rate of tax) is, however, applicable.

If your auction property assets are held within a limited company, you may choose to pay yourself a salary. The company must take Income Tax and National Insurance contributions from your salary payments and pay these to HMRC, along with employers’ National Insurance Contributions (which will increase from 13.8% to 15% in April 2025 on salaries over ￡5,000).

Alternatively, you could extract profits through dividend payments which would also be subject to income tax if over ￡500. You cannot count dividends as business costs when you work out your Corporation Tax. Note that if you take more money out of a company than you’ve put in – and it’s not salary or dividend – it’s called a ‘directors’ loan’ and different rules apply.

Auction Property Taxes as a Seller

Much will depend on how you own your property – i.e. in your personal (individual) name or through a limited company. As many of our clients are sellers and tired landlords who have owned second properties for some time (and therefore never considered incorporating), let's start with Capital Gains Tax.

Capital Gains Tax (CGT)

The Capital Gains Tax rates on the sale of properties that are not classed as a personal home (and therefore ineligible for Private Residence Relief) are outlined below:

Capital Gains Tax (CGT) is only levied on the profits you make from the sale of an auction property and is calculated by deducting the original purchase price from the sale price. You can also deduct certain costs incurred when buying or selling the property which includes expenses like estate agent costs, conveyancing fees (and associated disbursements), stamp duty and any qualifying improvements.

If you’ve made a loss on the sale of any other assets, you can offset this loss against your property gains, reducing your overall CGT liability. For example, if you sell a property at a ￡50,000 loss but make a gain on another, you can use that loss to offset the gain and reduce the tax you owe. Make sure to report any losses on your Self-Assessment tax return (they can be carried forward and claimed for up to four years after they occurred).

Note there is also the annual tax-free allowance of ￡3,000 for the 2024/25 tax year (down from ￡6,000 in 2023/24).

Corporation Tax on Property Asset Disposals

Whilst not technically called 'capital gains tax', you still have to pay tax on the gain when you sell a property owned in a limited company. As mentioned above, profits will be taxed at the corporation tax rate which is up to 25% depending on the amount of the property company generates from the sale(s).

You (or your company / corporate entity) cannot offset your personal capital gains tax-free allowance here. Generally speaking, however, for higher rate taxpayers, the overall rate of tax can be lower via a limited company than when owned as an individual.

To Conclude...

There's quite a lot to digest above but much comes down to taking your time to understand what will specifically apply to your situation as an auction buyer or seller and, of course, working with a well-qualified accountant and/or tax advisor.

For a deeper dive, check out the podcast recording between Ruban Selvanayagam and Simon Misewicz on this very topic.