As specialists in property accounting, we at Smith Butler understand the importance of effectively managing capital gains tax (CGT) when disposing of properties.
This blog aims to guide landlords and property investors through the essential steps of CGT planning for the 2024/25 tax year, ensuring you can maximise your returns while complying with the latest regulations.
Understanding capital gains tax on property
Capital gains tax is levied on the profit made when you sell a property that isn’t your main home. This includes buy-to-let properties, business premises, land, and inherited properties. The rate of CGT you’ll pay depends on your overall income and the increase in property value since purchase. For the 2024/25 tax year, the CGT rates for property sales are 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers.
Calculating your potential CGT liability is crucial as soon as you consider selling a property. Early planning can significantly influence your tax responsibilities and the timing of your sale.
When should you think about CGT?
The best time to start planning for CGT is before you even list the property for sale. Understanding the potential tax implications can help you decide the most financially beneficial time to sell. For example, if selling the property in the current tax year would push you into a higher tax bracket, waiting until the next tax year might be more tax-efficient.
Key reliefs and allowances to consider
- Private Residence Relief: This relief is available if the property being sold was your main home for a period of ownership. You may be eligible for full or partial relief from CGT, depending on the duration of your occupancy.
- Lettings Relief: If you’ve let out a property that was once your main residence, you might qualify for lettings relief, which could reduce your CGT bill.
- Annual Exempt Amount: For the 2024/25 tax year, the annual exempt amount for individuals is £3,000. This means the first £3,000 of your total annual capital gains are tax-free.
Records you must keep
To accurately report and pay your CGT, it’s essential to keep detailed records. These should include the purchase price, costs of buying, selling or improving the property, and details of any periods of private residence or rental. Accurate record-keeping not only ensures compliance but can also help in maximising eligible reliefs.
How can we assist you?
At Smith Butler, we leverage modern technology to streamline the CGT calculation process, ensuring accuracy and compliance with the latest tax laws. Our services include:
- Pre-sale CGT estimates: We can provide detailed forecasts of your potential CGT liabilities, helping you decide the optimal time to sell.
- Tax relief advice: Our experts can advise you on how to maximise the tax reliefs available to you, potentially saving you a significant amount in taxes.
- Record-keeping assistance: We offer digital solutions to simplify record-keeping, making tracking and managing your property transactions easier.
Looking ahead
Planning for CGT does not have to be a daunting task. With the right guidance and tools, you can effectively manage your tax obligations and ensure your property investments remain profitable. We are here to help you understand and utilise all the available reliefs and allowances to your advantage.
In conclusion, effective CGT planning is a critical aspect of property management. By starting early and utilising professional advice, you can significantly reduce the impact of capital gains tax on your property disposals. Whether you’re a seasoned landlord or new to property investment, we’re here to support you through every step of your CGT planning.
For more detailed information and personalised advice, visit our main page on CGT and property management at Smith Butler Accountancy.
Contact us and let us help you keep more of what you earn from your property investments.