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In a recent article, The British Landlord Association said that “The UK rental market is undergoing a seismic shift” and pointed to various reasons for this:
- The decline in profitability – successive policy changes have eroded rental margins over recent years;
- Economic impact – interest rates and cost of borrowing remain high;
- Changes to the regulatory landscape – the Renters’ Rights Bill which will abolish “no-fault” evictions has caused particular concern among landlords;
- Increased compliance burden – the introduction of Making Tax Digital (MTD) from April 2026 will require quarterly income submissions to HMRC.
Whether the shift is going to be “seismic” remains to be seen but certainly at Scrutton Bland we are having an increasing number of conversations with private landlords and second home owners who have decided to cash in and realise their gains.
Sam Stent, Tax Advisory Partner heads up our Property Tax and SDLT team and considers whether now is a good time to sell and outlines some of the associated Capital Gains Tax (CGT) implications.
The current tax position
CGT remains payable at 18% for basic rate taxpayers (on any amount within their unused basic rate band) and 24% for higher rate taxpayers.
In line with HMRC’s long term approach to ensure that any tax liabilities are paid to them as soon as possible, it’s necessary to complete a separate CGT return (and pay any CGT due) within 60 days of sale of a residential property.
So, what can you do to reduce your CGT bill on a rental property?
Does the property qualify for Private Residence Relief? (PPR)
CGT relief is available on a property which has originally used as your main residence before being rented out. This can apply to landlords where for example an individual owns a property, moves in with a partner and then rents out their former home.
We are often asked if simply moving into your rental property or second home for a period of time can make it eligible for PPR and the CGT exemption. My usual motto of “if it sounds too good to be true it probably is” applies here – sadly it’s not quite that simple!
PPR relief will only apply if you can demonstrate that you intended to occupy the property as your main residence on a continued and permanent basis and will only exempt the portion of the gain attributable to the period you actually lived there (plus the final 9 months of ownership).
HMRC regularly investigate PPR claims, so it’s important to take professional advice if you’re unsure of your position.
Is the property in joint names?
If the property is owned in your sole name, it can in some cases be beneficial to transfer part or all of the property to your spouse or civil partner. This can offer a saving where the spouse has not utilised their CGT annual exemption for the year, or if they are a basic rate taxpayer and pay the lower rate of CGT.
Whilst this can provide a CGT saving in some cases, there are several points to consider such as any Stamp Duty Land Tax that may arise on transfer (e.g. where there is a mortgage on the property), and whether the tax saving outweighs any legal costs of transferring the ownership.
Could you realise capital losses?
If you’ve any brought forward any capital losses which you’ve claimed in previous tax years, these can be offset against any property gains to reduce your CGT liability.
If you don’t have any brought forward capital losses, you could consider realising capital losses on other assets, such as investments, as any losses realised in the same tax year as the property gain can also be offset.
Have you renovated the property?
You can reduce your CGT liability by simply ensuring you claim all relevant expenses. These can include incidental costs in relation to the sale, Stamp Duty Land Tax and other costs you incurred when initially purchasing the property, as well any capital improvement costs. Relief is not available for general repair and maintenance costs, but it can be claimed for structural costs such as adding an extension, converting the loft or changing the layout of the property.
The deduction of capital expenditure is again an area HMRC look at regularly, and we would strongly recommend obtaining advice to ensure you are claiming the maximum amount you are entitled to.
Current rate of CGT
The Office of Tax Simplification was asked in 2019 to review the difference between Income and Capital Gains Tax rates and there has been speculation that there may be plans to gradually align the rates of CGT with income tax rates.
As things stand however, the current rate of CGT for residential properties remains lower than it has been for many years, and this may be another reason why landlords are choosing to sell now – to protect themselves against any future increases in the tax rate.
So, is now the best time for landlords or second home owners to sell?
In summary, there a number of financial factors to consider and inevitably the circumstances of the sale of each property will be different. It’s therefore vitally important to take professional advice regarding your own position.
The tax team here at Scrutton Bland are well placed to advise on this matter, with a breadth of knowledge and experience in dealing with property matters including selling both rental properties and second homes. Get in touch today by emailing hello@scruttonbland.co.uk or calling 0330 058 6559.
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