What expenses can I claim when selling an investment property?
Understanding Capital Gains Tax
Unless you are operating as a limited company, you will become liable for Capital Gains Tax when you sell (aka dispose of) any eligible asset, including an investment property.
The concept of Capital Gains Tax is pretty simple: it is a tax on the difference between what you paid for the asset and what you sold it for (i.e., the asset’s gain in value).
If your combined gains exceed your allowance (£6,000 in the tax year 2023/24), then you will pay tax on the excess. The level of tax will depend on your combined earnings over the year.
However, you can reduce your taxable gains by deducting allowable expenses. This is where people can get confused because they mix up the expenses that can be deducted from profits for income tax purposes, and those that can be deducted for capital gains purposes.
The easiest way to get this right (apart from handing it all to your accountant) is to break down expenses relevant to capital gains tax into three categories: buying costs, selling costs and improvement costs.
What expenses can I claim when selling an investment property? Buying costs
The first category of expenses you can claim are those incurred directly through the purchase of the investment property. That includes SDLT (stamp duty), solicitors’ fees, survey costs and other professional fees. These should all be included in your completion statement, so go through that with a fine-tooth comb when filling in your tax return. You may even be able to claim travel expenses, providing these were incurred solely in relation to purchasing the property.
It is important to understand that you are not allowed to include any costs that are involved in the day-to-day letting of an investment property. Management fees, letting agent fees, etc. must instead be set against your income tax bill on your annual tax return.
What expenses can I claim when selling an investment property? Selling costs
The second category of expenses you can claim against Capital Gains Tax are those incurred directly through the sale of the investment property. That includes advertising costs, estate agents’ fees and legal fees. Again, some travel expenses may be eligible.
Make sure you set up a good filing system so you can organise your receipts and related documentation.
What expenses can I claim when selling an investment property? Improvement costs
Here is where some property investors slip up. This is understandable because there is a fine line between improvement work and general maintenance work. The question you need to ask yourself before claiming an improvement expense is: ‘Did the work add value to the house?’
If you built an extension or renovated a room, this will usually be an allowable expense. Carrying out repairs, repainting, cleaning and garden maintenance are not seen as allowable expenses for Capital Gains Tax. Instead, you would set these costs off against your annual profits for income tax purposes.
A note on Private Residence and Lettings relief
If you currently live in your investment property and let out a proportion of it, you are likely to qualify for Lettings relief. Although eligibility has become more restricted, some investment property owners may still qualify for Private Residence Relief if they occupied the property in the past.
The rules for these types of relief are complex and subject to change, so we recommend you speak to your accountant if you think you might be eligible.
Speak to a financial expert at a Fielding Financial property seminar
Interested in finding out more about the taxes involved in property investment? Come along to one of our free property seminars and speak to one of our experts. We host seminars throughout the UK, so book a place at your nearest venue. If there’s nothing convenient right now, make sure you opt in to notifications because we regularly add new dates and venues to our calendar.
We look forward to seeing you there.