Capital Gains Tax on Property: What You Need to Know

Selling a property can be a lucrative endeavour, but it's crucial to understand your potential tax liabilities. Capital Gains Tax (CGT) is a tax on the profit when you sell (or 'dispose of') something that's increased in value. It's the gain you make that's taxed, not the amount of money you receive.

Your Main Home (Private Residence Relief)

The good news is that if you sell your main home (your principal private residence), you usually do not have to pay any Capital Gains Tax. This is due to Private Residence Relief (PRR). To qualify fully, the property must have been your only or main residence throughout your period of ownership, you haven't let part of it out (this doesn't include having a lodger), and you haven't used part of it exclusively for business purposes.

When Do You Pay CGT on Property?

You may have to pay CGT if you sell:

• A buy-to-let property
• A second home or holiday home
• Business premises
• Land
• A property you've inherited (if you sell it later for more than its value when you inherited it)

CGT Rates for Residential Property

The rates of CGT for residential property are higher than for other assets (like shares). For the 2025/2026 tax year, the rates are:

• 18% for basic rate taxpayers.
• 24% for higher and additional rate taxpayers.

To work out which rate you pay, you must add your capital gain to your taxable income. If the combined amount falls within the basic rate band, you pay 18%. Any portion of the gain that pushes you into the higher rate band is taxed at 24%.

The Annual Exempt Amount

Everyone has an annual tax-free allowance for capital gains, known as the Annual Exempt Amount. For the 2025/2026 tax year, this allowance is £3,000. This means you only pay CGT on your overall gains above this threshold.

Deductible Costs

You can reduce your taxable gain by deducting certain costs associated with buying, selling, and improving the property. These include:

• Estate agent and solicitor fees
• Stamp Duty Land Tax paid when you bought the property
• Costs of major improvements (e.g., adding an extension). Note that regular maintenance and decorating costs cannot be deducted.

Reporting and Paying CGT

If you sell a UK residential property and have CGT to pay, you must report and pay the tax to HMRC within 60 days of the completion date. This is a strict deadline, and failure to comply can result in penalties and interest. You report this using a 'Capital Gains Tax on UK property' account.