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 the sale of UK residential property if it does not qualify for Private Residence Relief, and if the completion date was on or after 27 October 2021, it must be reported and paid within 60 days, rather than being due immediately upon sale.

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

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.

There are certain reliefs that can further reduce the Capital Gains Tax owed on the sale of your property. These are Private Residence Relief and Letting Relief.

Private Residence Relief

Homeowners who sell their main residence don’t pay any CGT on their property. They receive Private Residence Relief.

You pay Capital Gains Tax when selling property that’s not your main residence, but you may be eligible for some Private Residence Relief if you lived in the property previously. This is known as partial relief.

If you’re selling a property that functioned as your main residence:

• You don’t pay any CGT for the time you officially lived in that property. You receive Private Residence Relief for that period
• You don’t pay any CGT for the final 9 months you owned that property, regardless of whether you rented it out or not. You receive Private Residence Relief for those final 9 months

If you’re selling a property that’s registered as your main residence and you let out part of it:

• You’re eligible for Private Residence Relief for the percentage of the home you occupy - e.g. you live in 60% of the property and let out 40%

The formulas to follow to work out which part of the gain is covered by Private Residence Relief and is extempt from CGT are:

Total gain (£) x (Period you occupy property as main residence in months ÷ Total period of ownership in months)

OR

Total gain (£) x Percentage ownership

Letting Relief is only available to landlords selling property in circumstances that meet specific criteria. Letting Relief can reduce the Capital Gains Tax payable on a property by up to £40,000 of tax-free gains.

To qualify you must:

• Already qualify for partial Private Residence Relief, i.e. you previously lived in the property you’re selling
• Have let out part of the property as residential accommodation while also living in another part of the same property as your only or main residence

Since April 2020, you can only claim Letting Relief if you lived in the property at the same time as your tenant during the letting period. Letting Relief no longer applies if you rented out the whole property without occupying it yourself. 

The amount of Letting Relief you can claim is the lowest of the following:

• The same as the amount of Private Residence Relief you’re going to receive
• £40,000
• The chargeable gain you make from the letting - i.e. the gain you make for the period you rented out the property while also living in it

This means that, in addition to the Private Residence Relief you can claim, you may also receive Letting Relief, which will be the lowest of the 3 amounts above.

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 applies to overseas properties if you are a UK tax resident. When you sell an overseas property and make a profit, you must report the gain to HMRC, and CGT will be due at the same rates as UK property sales (18% for basic rate taxpayers, 24% for higher rate taxpayers from 2025/26). 

In many cases, you may also be taxed in the country where the property is located, meaning you could be taxed twice. However, you may be able to claim Foreign Tax Credit Relief, depending on the DTA (Double Taxation Agreement) between the UK and the foreign government. 

The profit from selling an overseas property in a foreign currency must be converted into GBP based on the official exchange rates at the time of purchase and sale. Even if you sell the property for the same amount in foreign currency, exchange rate fluctuations could create a taxable gain in GBP. 

For example, if you bought a property for $100,000 USD in 2010, this might have converted to around £62,000 GBP at the time. If you sold the property for $100,000 USD in 2023, the exchange rate might mean this is now £78,000 GBP.

In this case, the taxable gain would be based on the profit in GBP: £78,000 - £62,000 = £16,000. 

This amount would then be subject to Capital Gains Tax at the applicable rate.

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.