Selling Rental Properties

When you sell a rental property, the transaction doesn't go through Making Tax Digital quarterly updates. Property sales are capital events — they're reported separately for Capital Gains Tax, not as part of your MTD quarterly updates.

This short guide explains what selling a property means for your MTD reporting and how to avoid common mistakes.

The sale doesn't affect MTD quarterly updates

Disposing of a property is a capital transaction. The proceeds from the sale aren't rental income and shouldn't appear in your Making Tax Digital quarterly submissions.

What this means:

  • The sale price doesn't increase your rental income for MTD purposes
  • Selling costs (estate agent fees, legal fees) aren't MTD expenses
  • The transaction doesn't affect your quarterly updates

Capital Gains Tax is separate from MTD

When you sell a rental property, you may need to pay Capital Gains Tax on any profit you make.

How CGT works:

Your taxable gain is broadly the sale price minus the purchase price, minus allowable costs (legal fees, improvement costs, estate agent fees). If the gain exceeds your annual Capital Gains Tax allowance, you'll owe tax on the excess.

Reporting CGT:

You must report and pay Capital Gains Tax within 60 days of completion using HMRC's online Capital Gains Tax on UK property service. This is separate from your MTD submissions and Self Assessment tax return.

Capital Gains Tax is outside the scope of this guide. For detailed information, see HMRC's guidance on reporting and paying Capital Gains Tax on UK property.

Why your capital expense records matter

When working out your capital gain, you can deduct certain costs from the sale price to reduce your tax bill.

Costs you can deduct:

  • The original purchase price
  • Stamp Duty Land Tax paid when you bought the property
  • Legal fees for buying and selling
  • Estate agent fees
  • Capital improvements made to the property (extensions, new kitchens, structural work)

If you've been tracking capital expenses in Provestor throughout your ownership, you'll have records of these costs ready when you need to calculate your gain.

For detailed guidance on what counts as capital expenditure and how to record it, see Capital and revenue expenses.

Don't record the sale proceeds as income

If the sale proceeds hit a bank account you're tracking in Provestor, don't record them as rental income. They're capital receipts, not business income.

How to handle it:

Record the payment as a transfer in to your bank account. This keeps your account balance accurate without incorrectly treating the proceeds as taxable rental income in your MTD submissions.

For guidance on recording transfers, see Recording transfers between accounts.

What to do after selling a property

Remove the property from active use

Once you've sold a property, you stop recording income and expenses for it in Provestor. You might want to rename the property so it's clear it's been sold.

Keep your records

You must keep records of rental income and expenses for at least five years after the 31 January tax return deadline. For sold properties, this means keeping records for five years after the final tax year in which you owned the property.

You should also keep records of capital costs (purchase price, SDLT, improvements, selling costs) to support your Capital Gains Tax calculation.

Common mistakes to avoid

Recording sale proceeds as income

Don't record the sale price or deposit as rental income. These are capital receipts and have no place in your MTD submissions.

If you've recorded proceeds as income in error:

  • Delete the income transaction
  • If you're tracking account balances, record the payment as a transfer instead
  • Ensure your next quarterly update reflects the corrected position

Claiming selling costs as MTD expenses

Estate agent fees, legal fees for the sale, and other disposal costs aren't allowable MTD expenses. They reduce your capital gain for CGT purposes, not your rental income.

How to handle selling costs:

  • Don't record them as business expenses in Provestor
  • If you're tracking account balances, record payments as transfers out
  • Keep receipts separately for your Capital Gains Tax calculation
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