Capital Gains Tax UK Property: Allowance, Rates and More

Capital Gains Tax (CGT) is a UK tax you pay on a portion of the profit – or capital gain - you earn from the sale of various chargeable assets, including property or land that’s not your main residence. The amount you pay depends on your personal income and the profit you receive from the sale.

You don’t only pay Capital Gains Tax on buy-to-let properties. You pay Capital Gains Tax on the capital gain you receive from the sale of other properties that aren’t your main residence, including:

• Buy-to-let properties
• Second homes
• Land
• Inherited properties
• Business premises

• Main residences: if you sell your main home, you'll likely qualify for Private Residence Relief, which can exempt you from Capital Gains Tax (CGT). For example, if you bought your home for £200,000 and sell it for £300,000, the £100,000 gain could be tax-free
• Second homes: CGT applies to second homes or holiday properties. If you bought a second home for £150,000 and sell it for £200,000, the £50,000 gain is subject to CGT, minus your annual CGT allowance
• Buy-to-Let properties: CGT also applies to rental properties. For instance, purchasing a buy-to-let property for £250,000 and selling it for £300,000 results in a £50,000 taxable gain after deducting expenses and your CGT allowance
• Commercial properties: when selling commercial properties, CGT is based on the difference between the purchase and sale prices, minus allowable expenses. Business Asset Disposal Relief can reduce the CGT rate to 10% for qualifying gains up to £1 million. For example, if you bought a commercial property for £500,000 and sell it for £700,000, the £200,000 gain is subject to CGT. However, reliefs and deductions can significantly lower the tax burden

You pay Capital Gains Tax on investment property you own as:

• An employed individual
• An unemployed individual
• a self-employed sole trader
• an individual in a business partnership

You don’t pay Capital Gains Tax on property owned and sold by a limited company; you pay Corporation Tax which currently stands at 25% (2024/25). This is because any property you own is viewed as part of your business, not a personal investment.

Capital Gains Tax is payable on property the moment it’s sold. You must report and pay it within 60 days of selling the property if the completion date was on or after 27 October 2021.

The amount of CGT you pay on property ultimately depends on 2 things:

• The profit you make when you sell your property - i.e. your capital or taxable gains
• The rates at which you’re charged Capital Gains Tax

HMRC use your personal income to determine the rates at which you’ll pay Capital Gains Tax on property. They add your taxable gains to your income and see which Income Tax band you fall into the year you made your sale. You then pay Capital Gains Tax at the appropriate rates on the portion of your capital gain that’s taxable. 

To work out how much Capital Gains Tax you’ll pay on your property, you must first work out your:

• Total taxable gain - i.e. the profit you’ve made from this investment
• Taxable gain minus any deductible expenses and the CGT allowance
• Your tax threshold and therefore the rates at which you’ll pay CGT

How to Work Out Your Total Taxable Gain

You can find your taxable gain if you:

• Take the amount you sold your property for
• Deduct the price you paid for that property in the first place
• The amount left over = total taxable gains or your net profit

You can substitute the current market value for the sale price of your property if you haven’t sold it yet.

Example

• You purchase a property for £100,000
• You sell the property for £400,000
• Your total taxable gain or net profit is: £300,000

We’ll keep using the same example throughout and continue to build on it, so you can see how everything works together.

Alternatively, you can use our Capital Tax Gains Calculator to help work out how much it may cost you.

You can deduct certain costs from taxable gains to reduce the Capital Gains Tax you pay on your property, including:

• Stamp Duty paid when buying the property
• Estate agents’ fees
• Solicitors’ fees
• Certain other buying and selling costs, such as a surveyor 
• Costs for improvements to the property, e.g. an extension or kitchen upgrade

You can’t deduct:

• Costs for the maintenance of the property
• Mortgage interest

To calculate the taxable gains after your expenses and allowance, you:

• Take your taxable gains
• Deduct any allowable expenses
• Deduct the Capital Gains Tax allowance

Example

Following on from the same example:

• You purchase a property for £100,000
• You sell the property for £400,000
• You spent £10,000 on Stamp Duty and agency fees
• You spent £50,000 improving the property
• Your total taxable gain or net profit is: £400,000 – £100,000 = £300,000
• Your taxable gains after your expenses is: £300,000 – (£10,000 + £50,000) = £240,000
• Your taxable gains after your expenses and allowance is: £240,000 - £3,000 = £237,000

Now you know your taxable gains after your allowable expenses and allowance, you can start to work out the rates at which you'll pay CGT on property.

It’s a little more complicated when you claim Private Residence Relief or Letting Relief, but we explain this below.

You can avoid paying as much Capital Gains Tax when selling property if some sales resulted in losses. These are called allowable losses and you deduct them from your profit when you work out your taxable gains. To reduce the Capital Gains Tax you pay on the sale of property for that year, you need to report your losses to HMRC in your Self-Assessment tax-return.

If your gains are less than the Capital Gains Tax allowance, then you don’t need to report them. You can carry them forward to the next tax year. Similarly, you can deduct unused losses from previous tax years. It’s always best to speak to your accountant. They can help you decide on the best course of action.

HMRC use your Income Tax band to determine the rates at which you’ll pay Capital Gains Tax. They add your taxable gains to your personal income to see which tax band you fall into the year you made your sale.

The Income Tax rates are:

Paying Capital Gains Tax on property is quite straightforward. Basically, you need to work out your taxable gains and then, if it’s above the Capital Gains Tax allowance, you need to report them to HMRC.

You can report Capital Gains Tax online. If you're already registered for Self-Assessment, you must also provide details of the sale in your Self-Assessment tax return.

You can complete a tax return yourself or hire an accountant to fill it out on your behalf.

You must report and pay any CGT due on UK residential property within 60 days of selling the property if the completion date was on or after 27 October 2021.

Capital Gains Tax still applies to properties overseas if you’re a tax resident in the UK. When you sell an overseas property and make a profit, you are required to report this to HMRC and you will likely have to pay CGT at the same rate as standard. Capital Gains Tax reporting is a legal requirement for any capital gains you make worldwide.

In many circumstances, you’ll also have to pay tax in the country where you sell the property. This may mean you’re taxed twice. If you have been taxed twice, you might be able to claim tax relief. The amount you get back will depend on the double taxation agreement between the UK Government and the foreign government.

The profits from selling an overseas property in a foreign currency will be calculated based on the exchange rates, both at the time you purchased the property, and the time you sold it. This means that even if you sell a property for the same amount as the purchase price in another currency, the exchange rate may have changed since you bought it. In this case, you might still have to pay Capital Gains Tax as you could have made a profit when the amount is converted into GBP.

For example, if you bought a property for $100,000 USD in 2010, this would have converted to around £62,000 GBP. If you then sell the property for $100,000 USD in 2023, this would be around £78,000 GBP. The amount due in Capital Gains Tax would be based on the profit in GBP: £78,000 - £62,000 = £16,000.

Now you’ve sold your property, you may be looking for something new. Our mortgage advisers can help you organise your new investment. Call us on 0330 433 2927 or send an enquiry.