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Daily Mail
6 days ago
- Business
- Daily Mail
How being an accidental landlord could land you with a surprise tax bill when you sell
Britons could face a large tax bill if they opt to keep a former home as an investment. Some people, particularly those moving in with a partner or spouse, decide to keep a property rather than selling it when they move - becoming an 'accidental landlord'. While it can seem like a good investment given the prospect of rental income and potential house price growth, it could inadvertently end up costing people when they do eventually come to sell in the future. This is because those who sell their main home, rather than letting it, are entitled to full Private Residence Relief (PRR), which will shield them from capital gains tax (CGT). But once they let out their property, they forfeit their right to full PRR when they sell. 'PRR is essentially your protection against capital gains tax, and while you're living in your home as your main residence, any increase in its value is completely tax-free when you sell,' says Eamon Shahir, founder of self-assessment platform Taxd. 'Here's the crucial difference: if you sell your home while it is still your main residence, you don't pay capital gains tax no matter how much it has increased in value. 'However, if you decide to start renting to tenants, you don't immediately lose all that tax protection. 'His Majesty's Revenue and Customs apportions the gain based on how long you lived there versus how long you rented it out.' What it could mean for you On residential property, capital gains tax is currently charged at 18 per cent for basic rate taxpayers, and 24 per cent for higher rate taxpayers – but with any significant gain, people are likely to pay most of it at the higher rate. This is because a capital gain is added to a person's normal income to decide the tax rate. 'A lot of homeowners think their main home is always tax-free,' said Andy Wood, international advisor at Tax Natives. 'And it is, until you move out and rent it. 'That can mean a sizeable CGT bill, sometimes tens of thousands of pounds, which often comes as a nasty surprise if you weren't expecting it.' Plenty of people choose to rent their homes out for a while, rather than sell, according to Wood. 'Maybe they've moved in with a partner, taken a job elsewhere, or just don't think it's the right time to sell,' he adds. 'It often feels like a short-term, low-risk choice. But once you move out, the tax position shifts. 'You start losing the relief you get for living there, and the longer it's rented, the more of the gain becomes taxable.' Can capital gains tax wipe out rental profit? Ask a buy-to-let investor what has made them more money over past decades: rent or house price growth? The answer will invariably be house prices. Take a city like Manchester for example. Property prices there have almost doubled over the past 10 years, rising from £131,000 in May 2015 to £257,000 in May this year, according Land Registry figures. This means the average property in Manchester has risen in value by £12,600 a year on average over the past decade. Meanwhile average rents, which were £815 a month in the city in 2015 are now £1,143 per month, according to Zoopla's data. This means the average property has gone from making £9,780 a year to £13,716 a year in rent - but that's before tax, letting agent fees and any upkeep costs. Capital gains tax can be charged on any profit made on an asset that has increased in value, when someone comes to sell. It is the gain that is taxed, not the total amount of money they receive. For example, someone who doubles their house price from £131,000 to £257,000 will pay 24 per cent CGT on the £126,000 gain, though there is a £3,000 tax free annual allowance. While the CGT bill is unlikely to wipe out all rental profits, there are situations where it might - particularly if house prices suddenly take off in an area. For example, someone who purchased in London in the aftermath of the 2008 crash, but moved in with a partner and kept their home to rent may have found themselves in this predicament. Between May 2009 and May and May 2016, average London prices rose from £321,000 to £627,000. That's a £306,000 gain over a seven-year period averaging out at £43,715 a year. Someone in this situation selling in May 2016 would have faced a 28 per cent CGT bill at that time, albeit with a £11,100 annual allowance. That means in such a scenario they would have potentially incurred a £82,572 CGT bill on the sale. 'This catches more people out than you might think,' says Andy Wood of Tax Natives. 'If your rental income's been fairly low, but the property's gone up in value, you could still face a large CGT bill when you sell. 'We've seen cases where landlords earned £3,000 a year in rent but paid £30,000 or more in tax when they sold. That's enough to wipe out all the rental gains – and then some. 'Lettings relief used to help with this, but it was heavily cut back in 2020. Now, most of the gain will be taxed at 18 per cent or 24 per cent, depending on your income. 'That's a big hit for something that might have started off as a more of a stopgap solution.' However, it's worth pointing out that when someone moves out of their main home, they won't forfeit all their CGT relief. They will lose it for the years the property is let out, so when they sell they'll need to work out the proportion of time they lived in the home compared to the years it was let out. PRR also applies in full for the last nine months of ownership, whether or not someone lives at the property - provided the property was their main residence at some point. For example, if someone bought a property in 2010 and sold it in 2025, that's 15 years or 180 months in total. If they lived there for 10 years (120 months), they'd get PRR relief for 129 months (the 120 they lived there plus nine bonus months). That means 71 per cent of any gain would be completely tax-free. If they decided not to sell the property and rent it out, then only the remaining 29 per cent of the gain, representing the rental period, would be subject to capital gains tax. Eamon Shahir, founder of the online accountancy service Taxd Can it still make sense to let out your previous home? Ultimately, avoiding a potential CGT bill should not be the main reason for making a decision about whether to keep a property, rather than selling it. If someone could benefit from the rental income and feel the home will increase in value in the future, then there is arguably a strong reason to keep it as an investment. 'CGT is not necessarily a deal-breaker,' says Shahir of Taxd. 'It really depends on each person's specific situation, and once you understand how CGT works, keeping a property as a rental can still make perfect financial sense. 'And, with CGT, you're only ever taxed on the gain in the property's value, so you're never actually worse off for having owned it. 'The question is whether the rental income plus remaining capital growth makes it worthwhile. He adds: 'It often works well to let your property if you expect continued property price growth, rental yield after tax looks attractive, or you bought the property years ago and have already banked significant tax-free gains having lived there. 'On the other hand, it might not work if your property has already seen most of its gains and values are now stagnant or rental yields are poor.' There are also certain rule quirks that will benefit some people more than others, according to Shahir. 'Expats have a major advantage as CGT is only calculated on gains since 2015, which can make huge savings,' he says. 'And, if you move abroad for work, and then come back to live in your property - you will still qualify for PRR. 'For most people it depends on the long term goal. Holding the property and letting it out can be good as additional rental income, and potential CGT or PRR relief is available. Each individual should analyse, evaluate or seek tax support.' Best mortgage rates and how to find them Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs. That makes it even more important to search out the best possible rate for you and get good mortgage advice, whether you are a first-time buyer, home owner or buy-to-let landlord. > Mortgage rates calculator > Find the right mortgage for you To help our readers find the best mortgage, This is Money has partnered with the UK's leading fee-free broker L&C. This is Money and L&C's mortgage calculator can let you compare deals to see which ones suit your home's value and level of deposit. You can compare fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes. If you're ready to find your next mortgage, why not use This is Money and L&C's online Mortgage Finder. It will search 1,000's of deals from more than 90 different lenders to discover the best deal for you.
Entrepreneur
14-06-2025
- Business
- Entrepreneur
Entrepreneur UK's London 100: Taxd
Industry: Fintech Taxd is a digital tax filing platform that facilitates the completion of self-assessment tax returns. HMRC-recognised, Taxd offers a digital service that simplifies the process through step-by-step guidance and real-time support. Taxd has transformed the financial sector by blending innovative technology and accounting expertise. Co-founders and former PwC accountants Arjun Kumar and Eamon Shahir realised there was a gap in accessibility to affordable, straightforward accountants and a lack of understanding of tax systems, so they sought to remedy that. The platform's cutting-edge technology is thanks to the expertise of James Green, the third co-founder and Chief Technology Officer. In early development, Taxd was simply an idea on a Google Doc. The team would frequently meet in London, working day and night to bring their vision to life. "Taxd is great for London's startup ecosystem because we make taxes easier. We save founders time and money so they can focus on their startups. With expert support for expat tax, we have a niche for supporting founders moving to the UK or those who may be scaling across the globe. Similarly, for companies, our cost-effective, automated solution is perfect for bootstrapped founders looking to stay lean and efficient," says Kumar.
Entrepreneur
11-06-2025
- Business
- Entrepreneur
Terribly Taxing
Opinions expressed by Entrepreneur contributors are their own. You're reading Entrepreneur United Kingdom, an international franchise of Entrepreneur Media. For most people, tax season is a time of quiet dread - a looming deadline, a barrage of jargon, and a vague fear of doing it all wrong. But for Arj Kumar, it was the beginning of an idea: what if the headache could be removed entirely? As co-founder of Taxd, a London based digital tax platform designed to demystify and democratise self-assessment and a winner in the recent Entrepreneur UK London 100 list, Kumar is part of a new wave of fintech entrepreneurs shaking up a sector long defined by paper trails and pricey accountants. "We knew trust would be our biggest hurdle," says Kumar, reflecting on the platform's earliest days. "Tax is deeply personal, and most people associate it with face-to-face interactions. We had to show people that a tech-led solution could not only be just as effective - but even better." That meant obsessing over user experience, ensuring each interaction felt human, helpful, and secure. The platform combines automation with expert support, while its slick interface offers a far cry from HMRC's clunky portals. Trust, Kumar explains, was earned one client at a time - through clear communication, transparent pricing, and the reliability of a system built not just by engineers, but by tax professionals who understood the pain points firsthand. Kumar's journey began at PwC, where he and fellow co-founder Eamon Shahir saw the inefficiencies of traditional tax filing up close. Alongside James Green, who brought the technical muscle, they built a product that promised a smoother, faster, and far more affordable alternative. In the early days, they did what Kumar calls "things that don't scale" - late-night calls with customers, personalised guidance, endless tweaks to the platform based on direct feedback. It wasn't glamorous, but it worked. Still, the road wasn't always smooth. "We were fresh from PwC and had no real idea how to raise capital," Kumar admits. "Learning to speak the VC language - that took time. If I could do it again, I'd spend more time upfront understanding how the start-up ecosystem actually works." Today, Taxd is gaining ground with freelancers, contractors, and small business owners looking for an easier way to stay on the right side of HMRC. And Kumar has a few words of advice for founders following in his footsteps: focus on a real problem, know your domain inside out, and surround yourself with people who share the load. "If you can identify the cracks in a system you understand, you're halfway there. Then it's just about building something better - and proving it works."
