Capital gains tax on property: what you owe when you sell

Selling a property is a major financial transaction that requires careful handling of your legal and administrative obligations. Navigating the tax landscape involves clear planning to ensure full compliance with HM Revenue and Customs (HMRC) while protecting your financial interests. Whether you are managing a buy-to-let investment, selling a second home, or dealing with an inherited estate, understanding your tax position helps prevent unexpected costs. Engaging a specialist solicitor provides the practical guidance and clarity needed to manage your property disposal successfully.

Key Takeaway: Do I pay capital gains tax when I sell my house?

In the United Kingdom, you do not typically pay Capital Gains Tax (CGT) on the sale of your only or main home. You are generally exempt if you have lived in the property as your primary residence for the entire period of your ownership and have not used it for business or rental purposes. However, you may owe CGT if you sell a buy-to-let property, a second home, or a property that you have not resided in for the full duration of your ownership.

What is Capital Gains Tax on property?

Capital Gains Tax is a tax on the profit you make when you dispose of an asset that has increased in value. It applies to the gain, which is the difference between what you paid and what you sold it for, rather than the total amount received.

For property owners, chargeable assets include:

• Buy-to-let properties: Real estate bought to generate rental income.
• Business premises: Land or buildings used for trade.
• Land: Parcels that are not part of your primary garden.
• Inherited property: Assets from an estate that are not your main residence and are governed under Wills, Probate & Estate Law.
• Second homes: Holiday homes or properties for occasional use.

Private Residence Relief and your main home

Private Residence Relief (PRR) exempts your main residence from Capital Gains Tax. If you have lived in the property as your only home throughout your entire ownership, you do not have any tax to pay and do not need to report the sale to HMRC.

However, your relief may be restricted in the following scenarios:

• Partial business or rental use: Renting out part of the property or using a section exclusively for business limits your relief to the residential portion.
• Large grounds: If the total plot size exceeds 0.5 hectares, you must prove the land was necessary for the reasonable enjoyment of the property.
• Absences: Extended periods away from the home are subject to strict time limits and specific rules regarding occupancy before and after the absence.

Calculating your gain and allowable deductions

Calculating your taxable gain requires a systematic approach. You must subtract the original cost of the property and any eligible expenses from the total sale proceeds.

Allowable deductions include:

• Incidental costs: Fees paid for professional advice from solicitors, surveyors, or estate agents.
• Acquisition costs: The relevant property transaction tax paid when you purchased the property: Stamp Duty Land Tax (SDLT) in England and Northern Ireland, Land and Buildings Transaction Tax (LBTT) in Scotland, or Land Transaction Tax (LTT) in Wales.
• Enhancement expenditure: Costs for major capital improvements, such as building an extension or adding a permanent structure that increases the value of the asset.

Managing multiple properties and nominations

If you own multiple properties, you cannot claim Private Residence Relief on all of them simultaneously. You must nominate your main residence in writing to HMRC within two years of acquiring the second property.

Without a formal nomination, HMRC determines your main residence based on facts. Factors considered include:

• Electoral roll: Your registered voting address.
• Banking: The location of your primary bank accounts.
• Services: Where your healthcare and essential services are based.
• Occupancy: The actual time spent at each property annually.

Understanding market value and special valuation rules

Your gain is usually the difference between the sale price and the purchase price. However, you must use the market value of the property at the time of the transaction if:

• Gifts: You gave the property away or transferred it to someone else.
• Below-market sales: You sold the property for less than its worth to help the buyer.
• Inherited assets: You do not know the value used for Inheritance Tax purposes at the time of death.
• Historic ownership: The property was owned before April 1982, meaning you must use the value as of 31 March 1982.

Tax rates for residential property in 2026

For the 2026/27 tax year, the rates at which you pay CGT on residential property depend on your total taxable income. Every taxpayer is entitled to an Annual Exempt Amount of £3,000, which is deducted from your total gains before tax is calculated.

• Basic rate taxpayers: You will pay 18% on any gains that fall within the basic Income Tax band.
• Higher or additional rate taxpayers: You will pay 24% on any gains that exceed the basic Income Tax band.

If your total gains are substantial, you may pay a combination of these rates. Your Annual Exempt Amount should generally be set against gains charged at the highest applicable rate. Where part of your gain is taxed at 24% and part at 18%, applying the allowance against the portion taxed at 24% will usually produce the lowest tax liability.

Reporting deadlines and payment obligations

HMRC requires strict adherence to reporting timelines. If you have Capital Gains Tax to pay on the sale of a UK residential property, you must report the disposal and pay the tax due within 60 days of the completion date.

• The Reporting Service: You must use the official “Capital Gains Tax on UK property” account on the HMRC website to report the sale.
• Self Assessment: If you already complete a Self Assessment tax return, or are otherwise required to file one, you must also include the gain on that return and report any tax already paid through the 60-day service. If you have no other reason to file a Self Assessment return, reporting the disposal through the 60-day service does not, by itself, require you to complete one.
• Penalties: Failure to report or pay within the 60-day window may trigger automatic late filing penalties and interest on the unpaid tax.

Strategic tax planning and reliefs

Beyond basic deductions, you can manage your tax liability by claiming the correct reliefs to reduce the amount you owe.

Strategic options include:

• Business Asset Disposal Relief: If you are a sole trader or in a partnership and dispose of qualifying business assets, you might benefit from a reduced 18% tax rate from April 2026 (rising to 18% from the previous 14% rate applicable from April 2025).
• Offsetting losses: You can use losses from previous tax years to reduce your current gain. Unused losses can be brought forward if your gain remains above the tax-free allowance.
• Transferring to spouses: Asset transfers between spouses or civil partners are generally exempt from Capital Gains Tax. Transferring part ownership to a spouse with a lower income can potentially move the gain into a lower tax band, a process that typically requires a formal transfer of equity.

FAQs

Can I use a loss on one property to reduce the tax on another?

Yes. You can deduct an allowable loss from gains made on other assets in the same tax year. Remaining losses can be carried forward to future tax years.

What if I sell my property to a family member at a discount?

HMRC calculates tax using the current market value rather than the discounted price, meaning you are taxed on the difference between the original cost and the actual market value.

Do I have to pay CGT if I am a non-resident?

Yes. You are required to pay Capital Gains Tax on gains made from the disposal of UK land and property, regardless of your residency status for tax purposes. You must notify HMRC of the disposal even if the gain is below your allowance or if you have made a loss.

Understanding Capital Gains Tax is crucial for anyone selling a property in the UK. By keeping meticulous records, calculating your allowable deductions correctly, and respecting the mandatory 60-day reporting window, you can ensure that your property disposal is handled efficiently and legally. While straightforward sales can often be managed personally, complex situations such as inheriting property or owning multiple assets frequently require the assistance of a legal professional to protect your interests and optimize your tax position.

This guide provides general information only and does not constitute legal or financial advice.

Tax laws are subject to change, and your individual circumstances may affect your liability.

Takeaways:

• Mandatory 60-day Deadline: You must report and pay any Capital Gains Tax due on UK residential property sales within 60 days of completion to avoid interest and penalties.
• Annual Exempt Amount: All individuals benefit from a £3,000 tax-free allowance; only the gain above this amount is taxable.
• Private Residence Relief: Your main home is typically exempt from CGT, provided it has been your primary residence throughout your ownership and has not been used for non-residential purposes.
• Allowable Deductions: Always keep records of professional fees, the relevant property transaction tax paid on purchase — SDLT, LBTT or LTT — and significant capital improvements, as these costs may be deducted when calculating your gain.
• Connected Party Transfers: Be aware that gifting or selling property to family members at an undervalue is still taxed at the current market value.