Landlords: 60-day CGT reporting and the finance cost restriction

Two rules shape a landlord’s tax more than any other: the 60-day reporting requirement when a property is sold, and the restriction on relief for mortgage interest. Both are mechanical, both are widely misunderstood, and the second drives the question we are asked most: whether to put the properties into a company. This note explains the mechanisms and answers that question with numbers.

The 60-day return on a sale

If you are UK resident and sell a UK residential property on which capital gains tax is due, you must file a UK property return and pay the tax within 60 days of completion. The date of disposal for calculating the gain is exchange of contracts. The 60-day clock runs from completion. If no tax is due, because the gain is covered by private residence relief, by losses or by the annual exempt amount, no 60-day return is needed and the disposal is reported on the Self Assessment return instead.

Non-residents are treated differently. A non-resident who disposes of any UK land, residential or commercial, must file within 60 days whether or not there is tax to pay. We handle those returns alongside the non-resident landlord scheme work.

The return is filed through HMRC’s online property account, by you or by an agent you have authorised for that service, which is a separate authorisation from Self Assessment. The tax paid is a payment on account. The disposal goes on the Self Assessment return as well, where the figures are finalised against your income for the year. Late returns attract a fixed penalty, with further penalties at six and twelve months, and interest runs on late payment. The commonest cause of a late return is a solicitor who assumed the accountant was dealing with it. Tell us when you exchange, not when you complete. Property disposals and the 60-day return sit within our capital gains tax work.

The finance cost restriction

Mortgage interest and other finance costs on a residential letting are no longer deducted from rental income. Instead, the rental profit is calculated without them, that profit is taxed at your marginal rates, and you then receive a tax reduction equal to 20% of the finance costs. The reduction is capped at the lower of the finance costs, the property profits and your total income above the personal allowance, with any unused amount carried forward.

Worked through, with round figures: rent £40,000, other allowable costs £8,000, mortgage interest £16,000, owner already a higher-rate taxpayer.

• Taxable property profit: £40,000 less £8,000, which is £32,000. Tax at 40%: £12,800.
• Tax reduction: 20% of £16,000, which is £3,200.
• Tax on the property: £9,600.
• Cash profit after interest: £16,000.

So the tax is 60% of the money actually made. For a basic-rate taxpayer the two 20% figures cancel and the restriction costs nothing directly. But because the £32,000 is added to income before the reduction, it can push you into the higher rate, past the point where child benefit is clawed back, or over the level at which the personal allowance tapers. Furnished holiday lets used to be outside the restriction; that regime was abolished from April 2025, so it now applies to them too. It does not apply to commercial property. Rates change at Budgets. The mechanism does not. This is the core of our landlords and property income work.

Jointly owned property

Spouses and civil partners who own a property jointly are taxed on the rental income half each, whatever the actual ownership split, unless they own in unequal shares and make a Form 17 declaration to HMRC with evidence of the beneficial ownership. Joint owners who are not married are taxed on their actual shares. The finance cost restriction applies to each owner’s share of the interest. On a sale, each owner reports their own share of the gain, on their own 60-day return, with their own annual exempt amount. Getting the ownership split right before a sale is worth more than most planning done afterwards.

The incorporation question, with numbers

A company deducts interest in full and pays corporation tax on the profit after interest. On the example above, profit after interest of £16,000 taxed at the small profits rate of 19% is £3,040, against £9,600 personally. That is the number the marketing leads with. The rest of the sum is what it leaves out.

• Extraction. The £3,040 holds only if the profit stays in the company. Take it out as dividends and dividend tax applies on top. If you need the rent to live on, most of the gap closes.
• Getting the properties in. Transferring a property to your own company is a disposal at market value for capital gains tax, and a purchase at market value for stamp duty land tax, including the surcharge for additional dwellings. Incorporation relief can defer the gain where the letting is a genuine business run with substantial time and activity, which HMRC tests, and only if the whole business goes across for shares. There is no general relief from the SDLT. On a portfolio worth £1.5 million the SDLT alone can run to tens of thousands of pounds, more than a decade of the annual saving in the example above.
• Refinancing. Existing mortgages cannot simply be moved. Company buy-to-let lending is a smaller market at higher rates, with arrangement fees and valuations on top.
• Running costs. Statutory accounts, a CT600, a confirmation statement and the director’s own return: a fixed annual cost that a two-property portfolio feels and a twenty-property portfolio does not.
• Later. A company pays corporation tax on its gains with no annual exempt amount, and the shareholder is taxed again on extracting the proceeds.

Incorporation tends to make sense for landlords who are higher-rate taxpayers, who are reinvesting rather than drawing the rent, whose portfolio is large enough to absorb the running costs, and who are either buying new properties into the company from the start or can transfer the existing ones without a prohibitive SDLT and CGT cost. HMRC has published warnings about marketed hybrid partnership arrangements that claim to sidestep those costs. We model the decision on your actual figures before anyone goes near company formation.

If you are weighing a sale, a transfer between spouses or an incorporation, we offer a 30-minute call at no charge. Bring the mortgage statements and the last return, and we will run the numbers with you.