If you’re a landlord who once lived in the property you’re now renting out, it’s crucial to understand how Capital Gains Tax for landlords applies when you sell. This can significantly affect your final tax bill and, if not planned correctly, result in unexpected liabilities.
In this blog, we break down how CGT works for properties that were once your main residence, using a real-life example to clarify the calculations.
Why Do Landlords Need to Know About Capital Gains Tax?
It’s common for homeowners to retain their property after moving to a new home—either because they couldn’t sell at the time or they wanted to keep it as a long-term investment. If you eventually sell that property, any profit (capital gain) may be subject to CGT.
But there’s good news: if the property was your main residence for a time, you may be eligible for Private Residence Relief—reducing the CGT you owe.
Example: How Capital Gains Tax For Landlords Is Calculated
Let’s look at a simple scenario.
Amy, who is unmarried, bought a house for £150,000 on 1 May 2014 and lived in it until 1 May 2019. After moving out, she rented the property until she sold it for £200,000 on 1 May 2024.
She had no other capital gains in the 2024/25 tax year.
CGT Calculation for 2024/25:
| Description | Amount |
|---|---|
| Sale Price | £200,000 |
| Purchase Price | (£150,000) |
| Capital Gain | £50,000 |
| Main Residence Relief (60 months / 120 total months = 50%) | (£25,000) |
| Remaining Gain | £25,000 |
| Annual CGT Exemption (2024/25) | (£3,000) |
| Taxable Gain | £22,000 |
The CGT rate is:
- 18% for basic rate taxpayers
- 28% for higher rate taxpayers
Key Takeaway: Keep a Record of Occupancy Dates
As shown in the example, the period during which the property was your main home directly reduces your CGT liability. The relief is calculated proportionally—so accurate records are vital, especially if:
- You moved out and rented the property
- You returned to the property again later
- You’re unsure which property was your “main residence” at a given time
With the recent reduction in CGT exemptions and increased rates, every month of main residence use counts.
Tips for Landlords:
- Keep thorough records of move-in and move-out dates
- Consult a tax advisor when preparing to sell
- Factor in CGT when deciding whether to sell or keep renting
Final Thoughts
Understanding how Capital Gains Tax works for landlords who formerly lived in their property can save you thousands of pounds. Don’t leave it until sale time—start tracking your residency and property use today. For more information on CGT, click here.
If you would like any other advice on property, contact us today!