Ilyas Patel Accountants in Preston
Ilyas Patel Accountants in Preston
When it comes to selling a buy-to-let property, the goal for most landlords is to reduce their tax liability as much as possible.
A common query is whether the costs incurred in running the property, such as utilities and local rates, can be deducted from Capital Gains Tax (CGT).
The answer, while straightforward, highlights the importance of understanding property-related tax rules.
(Read Time: Approx. 5 minutes)
When you own and manage a rental property, you incur various expenses.
These expenses generally fall into two categories: revenue expenditure and capital expenditure.
The distinction between the two is crucial when it comes to tax relief.
Revenue expenses are the ongoing costs of running your rental property.
This includes utilities, council tax, and general maintenance.
These costs can be deducted from your rental income to reduce your income tax liability.
However, they do not affect your CGT calculation when you eventually sell the property.
Essentially, revenue expenditure is linked to the operation of your rental business rather than the property’s value.
On the other hand, capital expenditure relates to costs that add value to the property.
This includes significant improvements like extensions, renovations, or the fees involved in purchasing and selling the property, such as estate agent commissions, legal fees, and stamp duty.
These expenses are directly linked to the property’s value and can be deducted from your gains when calculating CGT.
Utility bills, local rates, and other running costs are considered revenue expenses.
Since they are associated with the day-to-day operation of your rental business, they are deductible from your rental income but not from your capital gains.
When you sell the property, these costs do not reduce the gain you’ve made from the property’s appreciation, which is the basis for your CGT liability.
To lower your CGT bill, you can deduct several key capital costs:
By carefully documenting these costs and ensuring they meet HMRC’s criteria for capital expenditure, you can substantially reduce the capital gain on which you’ll be taxed.
In addition to deducting allowable expenses, every taxpayer is entitled to an annual CGT exemption.
For the tax year 2025, this exemption stands at £3,000, meaning the first £3,000 of your gains are tax-free.
Any gain above this threshold will be taxed according to your income tax bracket.
For residential property gains, basic-rate taxpayers pay 18% CGT, while higher and additional-rate taxpayers are charged at 24%.
From the date of completion when selling your buy to let, you have 60 days to report the disposal to HMRC and pay any CGT owed.
This 60-day reporting period is mandatory for residential property sales where CGT is due.
The reporting is done through the “Capital Gains Tax on UK property” service, which is accessible online via HMRC’s website.
If you fail to report the disposal when selling your by-to-let property within the 60-day period, HMRC will impose penalties. The penalties are structured as follows:
While you can’t offset running costs like utilities and local rates against your Capital Gains Tax, understanding which expenditures qualify as capital expenses can help you reduce your tax bill significantly.
By maximising allowable deductions, taking advantage of your annual exemption, and properly planning your sale, you can ensure that you pay only what is necessary.
Understanding property taxes can be challenging, but you don’t have to do it alone.
Contact Ilyas Patel Accountants today for bespoke advice tailored to your situation.
Our experienced team is here to help you minimise your CGT liability and maximise your profits from property sales.
Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel