Selling a rental property in London can be a complex process, with a number of tax implications that you need to be aware of. This blog post will discuss the two main taxes that you may need to pay when selling your rental property in London: capital gains tax and inheritance tax.
Capital gains tax
Capital gains tax is a tax on the profit that you make when you sell an asset, such as a property. The amount of capital gains tax that you pay will depend on your capital gains tax rate and the amount of profit that you make.
Capital gains tax rates
There are two capital gains tax rates in the UK: a basic rate of 18% and a higher rate of 28%. The rate of capital gains tax that you pay will depend on your overall income tax rate.
Calculating your capital gains tax liability
To calculate your capital gains tax liability, you will need to know the following:
- The purchase price of your rental property
- The sale price of your rental property
- Any allowable costs that you incurred when purchasing or selling your rental property
Your capital gains tax liability is calculated as follows:
Capital gains tax liability = (sale price – purchase price – allowable costs) * capital gains tax rate
Inheritance tax
Inheritance tax is a tax that is paid on the value of an estate when someone dies. If you inherit a rental property from a deceased relative, you may need to pay inheritance tax on the value of the property.
Inheritance tax rates
The inheritance tax rate in the UK is 40%. However, there is a nil rate band, which is the amount of money that you can pass on to your heirs without paying inheritance tax. The nil rate band is currently £325,000.
How to reduce your inheritance tax liability
There are a number of ways to reduce your inheritance tax liability, such as:
- Making gifts to your heirs during your lifetime
- Setting up a trust
- Taking advantage of agricultural property relief or business property relief
Please note that this blog post is for general information purposes only and should not be taken as tax advice.
If you are thinking about selling your rental property in London, it is important to seek professional advice from an accountant to ensure that you are aware of all of the tax implications. Cornerstone Accountancy is a local accountancy firm in North London that can help you with all of your tax and accounting needs. Contact us today to arrange a free consultation.
