This guide is for information purposes only. As a mortgage broker, we’re not able to offer tax advice.
Selling a property can trigger a Capital Gains Tax bill, and how much you owe isn’t always obvious until you sit down and work through the numbers. This guide explains how Capital Gains Tax works on UK property, how to calculate what you owe, and how to go about paying it.
Not everyone pays Capital Gains Tax when they sell property, but many people do, and the amount can be more than expected. Working it out ahead of time means you won’t be caught off guard when the bill lands.
What Is Capital Gains Tax on Property?
Capital Gains Tax (CGT) is a UK tax charged on part of the profit, or capital gain, made when you sell certain chargeable assets, including property or land that isn’t your main home. How much you pay depends on both your personal income and the size of the profit from the sale.
Do You Only Pay CGT on Buy-to-Let Property?
No. CGT applies to the gain made on any property that isn’t your main residence, not just buy-to-let. This covers:
Main residences – selling your own home usually qualifies for Private Residence Relief, which can wipe out the CGT bill entirely. For example, buying a home for £200,000 and selling for £300,000 could mean the full £100,000 gain is tax-free.
Second homes – CGT applies to second homes and holiday properties. Buying one for £150,000 and selling for £200,000 creates a £50,000 gain, taxable once your annual CGT allowance is deducted.
Buy-to-let properties – the same principle applies to rental property. Buying for £250,000 and selling for £300,000 gives a £50,000 taxable gain, after expenses and your allowance are deducted.
Commercial properties – CGT is based on the difference between purchase and sale price, minus allowable costs. Business Asset Disposal Relief can bring the rate down to 10 percent on qualifying gains up to £1 million. Buying a commercial property for £500,000 and selling for £700,000 creates a £200,000 gain, though reliefs can reduce the tax owed considerably.
Could You Pay Corporation Tax Instead?
You pay Capital Gains Tax on investment property owned as an employed individual, an unemployed individual, a self-employed sole trader, or someone in a business partnership.
Property owned and sold by a limited company is different – the company pays Corporation Tax instead, currently 25 percent (2024/25), since the property is treated as a business asset rather than a personal investment.
When Is CGT Due?
CGT becomes payable the moment a property sale completes. If completion took place on or after 27 October 2021, you must report and pay within 60 days.
How Much CGT Will You Pay?
Two things determine your final bill:
- The profit made on the sale (your taxable gain)
- The rate at which that gain is taxed
HMRC works out your rate by adding your taxable gain to your income for the year and checking which Income Tax band the total falls into. CGT is then charged at the appropriate rate on the taxable portion of your gain.
To calculate what you owe, you need to work out:
- Your total taxable gain
- That gain minus deductible expenses and your CGT allowance
- Your tax band, and therefore your CGT rate
Working Out Your Total Taxable Gain
Your taxable gain is:
- The price you sold the property for
- Minus the price you originally paid for it
- The difference is your net profit
If you haven’t sold the property yet, you can use its current market value in place of a sale price.
Example:
- Purchase price: £100,000
- Sale price: £400,000
- Total taxable gain: £300,000
This same example is used throughout to show how each step builds on the last.
What Expenses Can You Deduct?
You can reduce your taxable gain by deducting certain costs, including:
- Stamp Duty paid when you bought the property
- Estate agents’ fees
- Solicitors’ fees
- Other buying and selling costs, such as a surveyor’s fee
- Costs of improving the property, such as an extension or a kitchen upgrade
You cannot deduct:
- Routine maintenance costs
- Mortgage interest
The Capital Gains Tax Allowance
For 2024/25, the CGT allowance on property is £3,000, meaning the first £3,000 of any gain is tax-free.
Continuing the example:
- Total taxable gain: £300,000
- After the allowance: £300,000 – £3,000 = £297,000
If your total gain falls below the allowance, you don’t need to report it to HMRC or pay any CGT.
Working Out the Gain You’ll Actually Pay Tax On
To find the gain that’s actually taxable:
- Start with your total taxable gain
- Deduct allowable expenses
- Deduct the CGT allowance
Continuing the example:
- Purchase price: £100,000
- Sale price: £400,000
- Stamp Duty and agency fees: £10,000
- Property improvements: £50,000
- Total taxable gain: £400,000 – £100,000 = £300,000
- After expenses: £300,000 – (£10,000 + £50,000) = £240,000
- After expenses and allowance: £240,000 – £3,000 = £237,000
Note that this becomes more involved if you’re claiming Private Residence Relief or Letting Relief – both covered further down.
What If You Make a Loss?
Losses on property sales, known as allowable losses, can be deducted from your profit when calculating your taxable gain, reducing the CGT you owe for that year. Report losses to HMRC through your Self-Assessment return.
If your gain is below the CGT allowance, there’s no need to report it, and you can carry it forward to a future tax year. Unused losses from earlier years can also be deducted. It’s worth speaking to an accountant to work out the best approach for your circumstances.
Working Out Your CGT Rate
HMRC determines your rate by adding your taxable gain to your personal income for the year and checking which Income Tax band the combined total falls into.
Income Tax bands (2023/24 and 2024/25):
| Band | Taxable Income |
|---|---|
| Personal Allowance | Up to £12,570 |
| Basic Rate | £12,571 – £50,270 |
| Higher Rate | £50,271 – £125,139 |
| Additional Rate | £125,140 and above |
On property gains, the basic rate portion is taxed at 18 percent, with anything above the higher rate threshold taxed at 24 percent.
Continuing the example:
- Taxable gain after expenses and allowance: £237,000
- Annual salary: £45,000
- On salary alone, you’re a basic rate taxpayer:
- 0% Income Tax on the first £12,570
- 20% Income Tax on the remaining £32,430 (£45,000 – £12,570) = £6,486 in Income Tax
- Add the taxable gain to salary: £237,000 + £45,000 = £282,000, which falls into the higher rate band
- 18% CGT on the gain between £45,000 and £50,270 (£5,270) = £948.60
- 24% CGT on the gain above £50,270 (£282,000 – £50,270 = £231,730) = £55,615.20
- Total CGT owed: £948.60 + £55,615.20 = £56,563.80
- Total tax that year: £56,563.80 in CGT plus £6,486 in Income Tax
Certain reliefs can reduce this further – Private Residence Relief and Letting Relief.
Private Residence Relief
If you sell your main home, you generally pay no CGT at all, thanks to Private Residence Relief.
If you’re selling a property that isn’t currently your main residence but was previously, you may still qualify for partial relief.
For a property that was once your main residence:
- No CGT applies for the period you genuinely lived there
- No CGT applies for the final 9 months of ownership, whether or not it was rented out during that time
For a property that’s your main residence but partly let out:
- Relief applies to the percentage of the property you occupy – for example, living in 60 percent and letting the remaining 40 percent
Formulas for working out the relief:
Total gain x (months occupied as main residence ÷ total months of ownership)
Total gain x percentage of the property occupied
Letting Relief
Letting Relief is available to landlords selling a property in specific circumstances, and can reduce the taxable gain by up to £40,000.
To qualify, you must:
- Already qualify for partial Private Residence Relief, meaning you previously lived in the property
- Have let out part of the property while another part remained your main residence at the same time
Since April 2020, Letting Relief can only be claimed if you’re living in the property at the time of sale, meaning you’d need to be sharing occupancy with a tenant when the sale completes.
The relief given is whichever is lowest of:
- The amount of Private Residence Relief you’re entitled to
- £40,000
- The chargeable gain arising from the period the property was let
How to Reduce Capital Gains Tax
Claim every allowable expense. Track renovation costs, legal fees, and selling costs carefully, and keep receipts, since these can meaningfully reduce your taxable gain and you may need to justify them later.
Time the sale carefully. Selling in a lower-income year can reduce your overall rate. Spreading sales across multiple tax years also lets you use your CGT allowance more than once.
How Do You Pay Capital Gains Tax?
Once you’ve worked out your taxable gain and confirmed it’s above the CGT allowance, you need to report it to HMRC.
Reporting can be done online. If you’re already registered for Self-Assessment, the sale also needs to be included in your tax return. You can complete this yourself or use an accountant.
If completion took place on or after 27 October 2021, any CGT due on UK residential property must be reported and paid within 60 days.
CGT on Overseas Property
If you’re a UK tax resident, CGT still applies to property you sell abroad. Any profit needs to be reported to HMRC, generally at the same rates as UK property.
You may also owe tax in the country where the property is located, potentially resulting in being taxed twice. Where this happens, you may be able to claim relief depending on the double taxation agreement between the UK and the country in question.
Exchange rates matter too. Profit on an overseas property in a foreign currency is calculated using the exchange rate at the time of purchase and at the time of sale. This means even selling for the same amount in the local currency can produce a CGT liability once converted to GBP, if the exchange rate has moved.
Example: a property bought for $100,000 in 2010 might have converted to around £62,000. Selling it for $100,000 in 2023 might convert to around £78,000. The CGT owed would be based on the gain in GBP terms: £78,000 – £62,000 = £16,000.