How Do You Navigate Property Gains from the Sale of a Residential Property?

Residential property gains are a critical consideration for landlords, especially when selling buy-to-let properties or inherited estates. Understanding the tax implications and reporting requirements is essential to avoid penalties. Planning is vital, as it ensures compliance with HMRC guidelines and minimises tax liabilities.

Residential property gains refer to the profit made when selling or disposing of a property that has increased in value. Firstly, it is essential to establish that if you live in a property and this is your primary residence, private residence relief can, in most cases, shield you from Capital Gains Tax.

For landlords, residential property gains from the sale of a property that isn’t your main residence are subject to Capital Gains Tax (CGT). HMRC defines a residential property gain as arising from the disposal of land or buildings used as dwellings, including associated gardens or grounds. Capital gains are generally calculated as the gain from the sale of the property, less allowable deductions, the cost of the property and the costs associated with acquiring the property.

Allowable deductions, such as legal fees and other costs associated with the sale, can significantly reduce taxable gains. Additionally, landlords can benefit from an annual CGT allowance, which is £3,000 for the 2024-2025 tax year, as well as any previous capital losses that have been carried forward.

HMRC requires that landlords report residential property gains within strict deadlines. For properties sold on or after October 27, 2021, gains must be reported within 60 days of the completion date using the online portal, and these would also need to be included on your self-assessment tax return.

Reporting residential property gains is a complex but essential task for landlords. By understanding the tax implications, adhering to reporting requirements, and planning, landlords can minimise liabilities and ensure compliance with HMRC guidelines.

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