Capital Gains Tax on Property What You Need to Know in 2025

Buying and selling property in the UK is more than just a financial transaction. It comes with tax rules that can shape the profit you actually take home. Among these, Capital Gains Tax is one of the most important to understand. Knowing the basics before you sell can help you plan better and avoid costly surprises.

What is Capital Gains Tax on Property?

Capital Gains Tax is a tax you pay on the profit you make when you sell or dispose of a property that has gone up in value. The tax applies to the gain, not the total sale price. For example, if you bought a property for £200,000 and later sold it for £300,000, the taxable gain would be £100,000.

This tax is most commonly linked to second homes, buy-to-let properties, inherited houses, land, or business premises. In most cases, your main home is protected by private residence relief, which means you will not have to pay Capital Gains Tax when you sell it. However, once the property falls outside this exemption, CGT rules apply.

When Do You Pay Capital Gains Tax on Property?

You pay Capital Gains Tax when you sell, gift, or otherwise transfer a property that is not fully covered by private residence relief. This usually includes second homes, buy-to-let properties, inherited houses, business premises, and land.

The tax applies to both UK residents and non-UK residents. If you are based in the UK, you are generally taxed on disposals of property anywhere in the world. If you live abroad but sell property in the UK, you may still have to pay UK Capital Gains Tax.

One important rule to remember is the reporting deadline. Any sale of UK residential property that creates a taxable gain must be reported to HMRC, and the tax must be paid within 60 days of completion. Missing this deadline can result in penalties and interest charges.

Capital Gains Tax Rates on Property in the UK

The amount of Capital Gains Tax you pay depends on your income level and the type of property being sold. The UK has different rates for basic rate taxpayers and for those in the higher or additional tax bands. There are also specific rules for trustees, estates, and certain businesses.

Rates for Basic Rate Taxpayers

If your total taxable income and gains keep you within the basic rate band, you will usually pay Capital Gains Tax at 18 percent on gains from residential property. This calculation includes your income, your annual allowance, and any taxable gain. Once your combined total moves above the basic rate threshold, the higher property tax rate applies.

Rates for Higher and Additional Rate Taxpayers

If your income places you in the higher or additional tax band, you will pay 24 percent on gains from residential property. The higher rate applies regardless of the size of your gain, once your income already falls into this category. For many landlords and investors, this rate represents a significant part of their costs when selling.

Trustees, Estates, and Businesses

Trustees and personal representatives who sell a property are also required to pay Capital Gains Tax. They are usually charged at the higher rate of 24 percent for residential property. Business owners may qualify for special relief, such as Business Asset Disposal Relief, which can lower the rate to 14 percent if the conditions are met.

Capital Gains Tax Allowance

Every individual in the UK gets a tax-free allowance for capital gains each year. This allowance lets you make a certain amount of profit before any Capital Gains Tax is charged. Only the gains above this threshold are taxable.

Couples who jointly own a property can combine their allowances, which means more of the profit can be taken tax-free. It is important to note that the allowance resets every tax year, and any unused amount cannot be carried forward. For this reason, timing a property sale carefully can sometimes help reduce your tax bill.

How to Work Out Your Gain on Property?

Working out your capital gain is straightforward once you understand the steps. The key is to focus on the difference between what you paid for the property and what you sold it for, then adjust for allowable costs and allowances. This gives you the taxable gain, which is the amount subject to Capital Gains Tax.

Step-by-Step Calculation

• Start with the sale price of the property.
• Subtract the original purchase price.
• Deduct allowable costs, such as legal fees, estate agent fees, stamp duty, and any improvements made to the property.
• Subtract the annual Capital Gains Tax allowance.
• Apply the correct Capital Gains Tax rate based on your income band.

Example Calculation

Imagine you bought a second home for £180,000 and later sold it for £300,000. Your selling costs, including estate agent and legal fees, were £5,000, and you spent £15,000 on an extension.

• Sale price: £300,000
• Purchase price: £180,000
• Allowable costs: £20,000
• Net gain before allowance: £100,000
• Annual allowance: £3,000
• Taxable gain: £97,000

Capital Gains Tax Reliefs on Property

Several reliefs can reduce or even remove your Capital Gains Tax bill when selling a property. These reliefs are designed to protect people in specific situations, such as selling their main home or letting out part of their property. Knowing which reliefs apply to you can make a big difference to your final tax bill.

Private Residence Relief

If the property you are selling has been your main home, you may qualify for private residence relief. This relief usually removes any Capital Gains Tax on the gain made from selling your only or main residence. In some cases, you may still have to pay part of the tax if you rented out a section of the home, used part of it for business, or owned land or buildings beyond the normal size of a residential plot.

Lettings Relief

Lettings relief may apply if you lived in your property as your main home while also renting out part of it. This relief can reduce the taxable gain, but it is not available if the entire property was let out. The amount of relief is capped and depends on the level of private residence relief you already received.

Other Reliefs and Exemptions

There are other situations where Capital Gains Tax may not apply. Gifts to a spouse, civil partner, or a charity are normally exempt. Inherited property is not taxed until you sell it, and even then, the calculation is based on the market value at the time you acquired it. Some properties occupied by a dependent relative may also qualify for exemption.

Reducing Your Capital Gains Tax Bill

There are several legal ways to bring down the amount of Capital Gains Tax you owe when selling a property. The key is to make use of allowances, reliefs, and smart planning before the sale goes through. Even small steps can make a noticeable difference.

One option is to deduct all allowable costs, such as legal fees, estate agent charges, and money spent on improvements. Another is to offset any capital losses you made from selling other assets in the same or previous years. If you own property with your spouse or civil partner, transferring part of the ownership can help you both use your individual allowances.

The timing of a sale also matters. If you are close to using up your allowance in one tax year, waiting until the next can help reduce your bill. Some owners may also benefit from nominating a property as their main residence before selling, provided the rules are followed correctly. Each of these methods can reduce the gain on paper, which lowers the final tax charge.

Reporting and Paying Capital Gains Tax on Property

When you sell a UK residential property that creates a taxable gain, you must report it to HMRC. The report is made through the UK property Capital Gains Tax return, which can be completed online. This process is separate from your regular self-assessment tax return.

The deadline is strict. You must report the sale and pay any Capital Gains Tax due within 60 days of completion. Missing this deadline can lead to penalties and interest charges, even if the delay is only a few days.

If you normally complete a self-assessment tax return, you may still need to include the property sale on it in addition to the 60-day report. Non-UK residents must also file a return for disposals of UK property, even if no tax is due. Careful reporting ensures compliance and avoids unnecessary costs.

Non-UK Residents and Capital Gains Tax on UK Property

Non-UK residents are also subject to Capital Gains Tax when they sell property in the UK. This rule applies to both residential and non-residential property, as well as certain indirect disposals such as selling shares in a company that mainly owns UK land.

There are three main methods available for working out the gain on residential property. You can calculate the gain based on the market value as of April 2015, apportion the total gain over the period of ownership, or use the full gain since purchase. Choosing the right method can reduce the taxable amount, so it is often worth seeking advice.

The tax rates for non-UK residents are the same as those for UK residents. Basic rate taxpayers pay 18 percent on residential property gains within the lower band, while higher or additional rate taxpayers pay 24 percent. Reporting rules are also strict, with the same 60-day deadline to notify HMRC and settle any tax due.

Record Keeping for Capital Gains Tax

Good record keeping is essential when it comes to Capital Gains Tax. Without clear evidence of your costs, HMRC may not accept deductions, which could increase the amount of tax you owe. Keeping full documentation makes it easier to calculate your gain and support any reliefs you claim.

You should keep purchase and sale contracts, legal and estate agent invoices, and receipts for any improvements made to the property. Records of stamp duty, surveys, or professional valuations should also be stored safely. If you offset losses, keep details of those transactions as well.

It is recommended to keep these records for at least six years after the end of the tax year in which you sold the property. For non-UK residents and trustees, records may be needed for even longer. Having everything in order protects you if HMRC asks for proof or reviews your return.

FAQs on Capital Gains Tax on Property