Capital Gains Tax (CGT) is the tax you pay on the gain you make from selling chargeable assets, not on the entire amount you receive from the sale.

Nimesh Patel, Tax Partner at Grunberg & Co says, “When you’re selling a property portfolio, navigating Capital Gains Tax requires careful planning to ensure you’re not overburdened by taxes on your hard-earned profits.

“It’s not just about what you receive from the sale – it’s about maximising what you keep.”

Currently, CGT rates stand as follows:

• 10 per cent (18 per cent for residential property) on the capital gain to the extent your total annual income and capital gains are below £50,270.
• 20 per cent (24 per cent for residential property, reduced from 28 per cent in the Spring Budget) on the capital gain to the extent your total annual income and capital gains exceeds the £50,270 threshold.

CGT on disposal of UK residential property must be paid to HMRC within 60 days following the completion date of the disposal and a capital gains tax return also needs to be filed by the same deadline where there is CGT to pay.

The start of the 2024/25 tax year saw the CGT Annual Exempt Amount drop to a historic low of £3,000, down from £6,000 the previous tax year.

Business Asset Disposal Relief (BADR), formerly known as ‘Entrepreneurs’ Relief, offers a reduced CGT rate for eligible disposals of business assets, offering substantial savings when you sell an asset.

BADR is exclusively accessible to individuals engaged in business who are disposing of a qualifying business asset and meet certain conditions. This disposal could involve selling an entire business or selling shares.

With BADR, you are subject to Capital Gains Tax at a reduced rate of 10 per cent on up to £1million of capital gains from disposing of qualifying business assets.

This relief is particularly advantageous for higher-rate and additional rate taxpayers, as it halves the CGT rate from 20 per cent.

What are the benefits of incorporating a property portfolio?

If you are a higher rate or additional rate taxpayer, incorporating your property portfolio into a company structure may offer you significant tax advantages, mainly because of how taxes differ between limited companies and individual landlords.

Nimesh says, “Incorporating your property portfolio may lead to substantial tax savings on rental income and benefit from limited liability a corporate structure has, making it a wise move for long-term investors not needing to draw rental profits out of the company in the form of taxable income”

If you’re considering incorporating a property portfolio into a limited company, you should be aware of the capital gains tax and stamp duty land tax implications when transferring properties to a limited company as they may outweigh the tax saving on rental income.

Owning your portfolio through a company, rather than personally, can offer significant tax reliefs – including the ability to claim a 100 per cent relief on mortgage interest payments.

Rather than paying Income Tax or CGT on your profits and gains, your company will be charged Corporation Tax instead. Where the shareholder is a higher rate or additional rate taxpayer, this is typically a lower rate, meaning you get to retain more of your profits.

Additional benefits include:

• More tax-efficient remuneration planning
• Reduced tax liabilities on residential property sales if the shareholder is a higher rate or additional rate taxpayer.
• Effective strategies for pension planning
• Better liability protection for the business owner, separating personal assets from business risks.

These benefits have to be weighed against the potential capital gains tax and stamp duty land tax on transferring properties to a limited company, as well as income tax on any profits taken out of the company.

For advice on Capital Gains Tax and your other property related tax liabilities, please get in touch with our team today.