Selling a property that is not your main home will almost certainly trigger a Capital Gains Tax liability. The tax is charged on the profit you make, not on the sale price, and it must be reported and paid within 60 days of completion, not at the end of the tax year. For most sellers, this is the part that causes the most difficulty: the obligation arrives fast, the calculation requires careful attention to allowable costs and reliefs, and the penalty for missing the deadline is automatic regardless of whether any tax is actually due. This guide explains how Capital Gains Tax (CGT) on property works in the UK, what rates apply, which reliefs can reduce or eliminate the bill, and exactly what you need to do when you sell.
What is Capital Gains Tax, and when does it apply to property?
Capital Gains Tax is charged on the gain you make when you dispose of an asset that has increased in value. For property, the disposal is typically a sale. The same rules apply to gifts and transfers to a connected person.
CGT applies to residential property that is not your main home. This includes buy-to-let properties, second homes, holiday lets, inherited properties, and properties previously used as a main residence but are now let out. It does not normally apply to your only or main home, which is covered by Private Residence Relief.
CGT does not apply where you make a loss. Losses on property disposals can be set against gains in the same tax year or carried forward to offset future gains.
Current CGT rates on property
The rates that apply depend on your total taxable income in the tax year of disposal. Since October 2024, CGT rates on residential property and other assets have been aligned. All chargeable gains, including those on residential property, are taxed at 18% where the gain falls within the basic rate income tax band, and 24% on any amount above the basic rate band.
To work out which rate applies, add your taxable income for the year to the taxable gain. Any portion of the gain that fits within whatever remains of your basic rate band (£37,700 above the personal allowance) is taxed at 18%. Any portion that exceeds the basic rate band is taxed at 24%.
Residential property does not qualify for Business Asset Disposal Relief, which is only available on disposals of qualifying business assets.
The annual exempt amount
Every individual receives an annual exempt amount that reduces the taxable gain. The annual exempt amount for individuals is £3,000, fixed at this level since the 2024/25 tax year. This has been cut significantly from £12,300 in 2022/23 and £6,000 in 2023/24. At the current level of £3,000, even modest gains produce a tax liability.
Married couples and civil partners each have their own £3,000 exemption. A jointly owned property sold by a couple effectively benefits from £6,000 of combined exemption, with the gain split in proportion to their ownership interests.
The annual exempt amount cannot be carried forward. Any unused portion in a tax year is lost.
How to calculate your gain
The gain is calculated as the disposal proceeds minus the acquisition cost minus allowable costs.
Disposal proceeds are the amount received from the sale of the property. Where the property is sold at below market value to a connected person, HMRC substitutes the open market value.
Acquisition cost is the original purchase price, including Stamp Duty Land Tax, legal fees incurred at the time of purchase, and survey costs.
Allowable costs that can be deducted include:
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Solicitor and estate agent fees on the sale
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The cost of capital improvements to the property, such as an extension, conversion, or new kitchen, provided these enhanced the value and are not simply maintenance or repair
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Costs of enhancing the asset, such as planning permission fees
Repairs, maintenance, and letting agent fees are revenue costs deductible against rental income, not against CGT. They cannot be deducted from the gain.
Worked example:
A buy-to-let property was purchased for £200,000, including £8,000 in SDLT and legal fees. The owner spent £25,000 on a loft conversion. It was sold for £320,000 with £6,000 in estate agent and legal fees on sale.
Step 1 — Calculate the gain:
Step 2 — Establish the tax position:
In this example, the seller has a salary of £55,000. After deducting the personal allowance of £12,570, their taxable income is £42,430 — which already exceeds the basic-rate band of £37,700. This means none of the basic-rate band is available to shelter any part of the capital gain, and the entire £86,000 taxable gain is charged at the higher rate.
Step 3 — Calculate the CGT bill:
The seller would need to report and pay £20,640 to HMRC within 60 days of completion.
Private Residence Relief
Private Residence Relief (PRR) is the most valuable CGT relief available to property sellers. Where a property has been your only or main residence throughout the entire period of ownership, the full gain is exempt, and no CGT is due.
Where the property was your main residence for only part of the ownership period, a proportion of the gain is relieved. The calculation is:
Exempt gain = Total gain multiplied by (period of main residence occupation divided by total ownership period)
The final nine months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the property has been your only or main residence at some point during the ownership period. For disabled people or those resident in a care home, the final 36 months of ownership may qualify for relief rather than nine months.
Certain periods of absence can also count as deemed occupation, including absences for work purposes both in the UK and abroad, and periods of up to three years for any reason, provided the property was occupied before and after the absence.
Nominating your main residence
If you own more than one residential property, you can nominate which one is your main residence for PRR purposes. The nomination must be made within two years of acquiring the second property. Failing to make or review a nomination can result in HMRC determining the main residence, which may not produce the most favorable outcome. If you have acquired a second property and have not made a nomination, this should be addressed promptly.
Letting relief
Letting relief was substantially restricted from April 2020. Letting relief is now only available where you shared occupation of the property with your tenant at the time of disposal. If you let the entire property while living elsewhere, letting relief no longer applies.
Where it does apply, the maximum relief is the lowest of £40,000, the amount of PRR claimed, or the gain attributable to the letting period. In practice, this means that relief is now only available to owner-occupiers who have a lodger while living in the property.
The 60-day reporting and payment rule
This is the rule that catches the most sellers off guard. When you sell a UK residential property on which CGT is due, you must report the disposal and pay the estimated tax owed within 60 days of the completion date. This is done through HMRC’s CGT on the UK property account, accessed via Government Gateway. The deadline is calculated from the date of completion, not the date of exchange of contracts.
Missing this deadline triggers an automatic £100 penalty and interest on any unpaid tax. If no CGT is due because Private Residence Relief fully covers the gain, the annual exempt amount, or losses, you do not need to file the 60-day return.
The 60-day CGT return is entirely separate from your annual Self Assessment return. If you file a Self Assessment, you will also report the same disposal there at the end of the tax year, but the 60-day return and payment must be made first. Any tax paid via the 60-day return is credited against your Self Assessment liability.
The £50,000 Self Assessment reporting threshold
In addition to the 60-day UK property reporting requirement, a disposal may also need to be reported through Self Assessment. For 2023/24 onwards, if you are within Self Assessment, you must report your capital gains on your tax return where the total disposal proceeds for chargeable assets in the tax year exceed £50,000, even if the gain is covered by the annual exempt amount, losses or reliefs, and no CGT is ultimately payable. This is a self-assessment reporting requirement and is addressed through the annual tax return rather than the 60-day property reporting service.
Transfers between spouses and civil partners
Transfers of property between spouses and civil partners who are living together are exempt from CGT. The recipient spouse assumes the original acquisition cost, so the gain accrues and is realized when they eventually sell. These transfers are at no gain, no loss.
This presents a planning opportunity. Before selling a property held solely by one spouse, transferring a share to the other spouse allows both annual exempt amounts to be used against the gain and, where one spouse is a basic rate taxpayer, ensures a portion of the gain is taxed at 18% rather than 24%.
Capital losses
Losses on property disposals are first set against gains in the same tax year. If losses exceed gains, the excess is carried forward and set against future gains in subsequent years. Losses cannot be carried back except on death.
In-year losses reduce the taxable gain before the annual exempt amount is applied. Losses must be reported to HMRC to be available for carry forward. The deadline to claim a loss is four years from the end of the tax year in which the loss arose. Without claiming within that window, the loss cannot be used to offset future gains.
Non-resident sellers
Non-UK residents selling UK residential property are subject to CGT under the Non-Resident Capital Gains Tax regime. The same rates apply: 18% and 24%, depending on income. The same 60-day reporting and payment rule applies.
For properties purchased before 6 April 2015, non-residents can elect to rebase the acquisition cost to the market value as at 5 April 2015, meaning only gains arising after that date are subject to tax. The rebasing election must be made on the 60-day return.
Non-residents must file the 60-day return even where a loss has been made or where no tax is due.
Inherited property
CGT on inherited property is calculated from the probate value at the date of death, not the original purchase price paid by the deceased. This effectively rebases the acquisition cost to the date of inheritance. Where an inherited property is sold promptly, the gain is often small. Where it is held for years and appreciates, CGT will apply to the gain over the probate value.
Inheritance Tax and CGT are separate taxes and can both apply to the same estate and property in some circumstances.
Common mistakes
Forgetting the 60-day deadline
The most common and costly error. Many sellers believe CGT on property follows the same annual Self Assessment timeline. It does not.
Not claiming all allowable costs
Original SDLT, acquisition legal fees, capital improvement costs, and disposal costs all reduce the gain. Sellers who focus only on purchase and sale prices, without deducting these costs, overpay.
Applying the wrong PRR calculation.
Particularly for properties that were once a main home and later let, the calculation of the exempt period must include the correct deemed occupation periods and the final nine months of ownership.
Failing to nominate a main residence.
Two property owners who do not make a timely nomination lose flexibility over which property benefits from full PRR.
Claiming letting relief incorrectly.
Letting relief is only available for periods of shared occupation, not for periods where the entire property was let.
Ignoring capital losses.
Losses must be reported to HMRC within four years of the end of the tax year in which they arose to be available for carry forward. Unreported losses are permanently lost.
Missing the Self Assessment filing obligation where proceeds exceed £50,000.
Even where no CGT is due, total disposal proceeds above £50,000 in a tax year must be reported through Self Assessment.Inheritance Tax and CGT are separate taxes and can both apply to the same estate and property in some circumstances.
Conclusion
Capital Gains Tax on property is not difficult to calculate once you understand the structure, but it rewards those who plan and punishes those who react after completion. The 60-day rule means that working out your liability, gathering your records, and setting aside funds to pay must all occur within 2 months of the sale. Private Residence Relief, the annual exempt amount, spousal transfers, and careful timing of disposals across tax years are the main tools available to reduce a CGT bill legitimately. Taking advice before exchanging contracts, not after completion, gives you the most options.
