Capital Gains Tax Shock for Buy to Let Landlords

hand-101003_640In recent years there has been significant growth in individuals investing in buy to let properties.

Landlords may be in for a nasty capital gains tax shock when they come to sell their property

Capital gains tax is payable on the profit calculated as follows:

£
Sales proceeds from sale of property  x
Less: costs associated with selling the property, ie. Advertising costs, estate agent fees, legal fees (x)
Less: enhancement costs, ie. cost of loft conversion (x)
Less initial cost of property (x)
Less: costs associated with purchasing the property, ie. Advertising costs, estate agent fees, legal fees & stamp duty fees (x)
Capital Gains tax profit  x

 

Each taxpayer has an Annual Exemption to set against capital gains tax profits.  The annual Exemption is currently £11,100 for the tax year ended 5th April 2016.

After offsetting the Annual Exemption, the remaining profit is chargeable to income tax at either 18% or 28% depending on where the profit falls within your lower or higher rate bands.

So… a higher rate taxpayer selling a buy to let property that originally cost £120,000 for £160,000 with total costs of £4,000. Has a capital gains tax profit of £36,000, which is reduced to £24,900 after his Annual Exemption, will face an income tax bill of £6,972.00.  A nasty shock indeed !!