What Is Capital Gains Tax on Property and How Much Will You Pay?
Capital Gains Tax on property has quietly become one of the most expensive taxes in the UK since the annual allowance dropped from £12,300 to £3,000 in just two years. For a higher-rate taxpayer selling a buy-to-let property with a £100,000 gain, that would mean a tax bill of up to £24,000, payable within 60 days of completion. The Property Management Company is providing you with complete guidance on what CGT is, who pays, who is eligible, and how to calculate it on a property.
What Is Capital Gains Tax on Property?
It is a tax that applies to the profit that you earn from selling your property. It does not apply to the complete amount, only to the gain amount. For example, if you buy a house for £200,000 and sell at r £280,000, then the CG will be £80,000, and tax will apply on this amount.
- For the 2025-26 tax year, CGT on residential property is charged at 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers.
- Every individual also has an annual exempt amount of £3,000, meaning only gains above this threshold are taxable.
Which Properties Are Covered In Capital Gains Tax?
The properties on which the CG tax applies are given below
- Second homes.
- Buy-to-let properties.
- Inherited properties.
- Gifted properties.
- Properties that were once your main home but no longer qualify for full relief.
CGT on Inherited and Gifted Property
There is no exchange of money taking place, and the people think that there will be no CGT applied for the inheritance and gift property, but it’s not true.
Inherited property:
You do not pay CG tax when you inherit a property because it applies only if you sell it for more than its real value, which is commonly known as the probate value. For example, the worth of the property is £260,000, and you sell it for £320,000. Your gain is £60,000, not the full sale price.
| Note: Inheritance Tax and CGT are separate charges. Paying one does not cancel the other.If you sell within two years of the date of death, you may be able to claim Private Residence Relief for the period it was the deceased’s main home. |
Gifted property:
HMRC treats a gift as a disposal at market value, which means the person who gives the gift may have to pay CGT as if they sold it at the real price. For example, a parent gifts a property worth £300,000 that they bought some years ago for £180,000. HMRC taxes the £120,000 gain, not on the original buying price.
| Does CGT Apply to Your Main Home? The simple answer is that the CGT does not apply to the properties that are your main home. The reason is that HMRC provides a relief that is called Private Residence Relief (PRR) that can eliminate your CGT bill when you sell your main residence house. The relief does not apply in every situation, such as You rented the property out at any point.You used part of it exclusively for business.The property was not your main residence for the entire ownership period.The garden or grounds exceeds half a hectare. |
Capital Gains Tax Rates (CGT) on Property
This tax on residential property is not a fixed rate because what you pay depends on your total taxable income for that year.
| Tax Year | Taxpayer Band | Income Range | CGT Rate | Annual Allowance |
| Before Oct 2024 | Basic Rate | Up to £50,270 | 18% | £6,000 |
| Before Oct 2024 | Additional Rate | Above £50,271 | 28% | £6,000 |
| From Oct 2024 onwards | Basic Rate | Up to £50,270 | 18% | £3,000 |
| From Oct 2024 onwards | Additional Rate | Above £50,271 | 24% | £3,000 |
If your income and property gain combined cross two tax bands, HMRC splits your gain lower portion at 18% and the higher at 24%. Always calculate both figures together before estimating your bill.
What Assets Are Excluded From The CGT Rates?
The assets that are not included in the capital gains tax are given below:
- Private motor cars, including vintage cars.
- Gifts to UK-registered charities.
- Some government securities.
- Prizes, cash and betting winnings.
- Stocks and shares held in an ISA.
- Foreign currency held for your own use.
- Sales that are taxed as trading or miscellaneous income.
What Is the CGT Annual Allowance 2026 and How Does It Work?
It is the amount of profit you can make from a property sale each year without paying any tax. Every individual receives a £3,000 annual exempt amount for the 2025-26 and 2026-27 tax years. Married couples and civil partners each have their own £3,000 allowance, giving a combined £6,000 tax-free allowance. The allowance cannot be carried forward if you do not use it in that tax year.
Trusts receive a reduced allowance of £1,500 per tax year. Timing a property sale across two tax years can allow you to use two years of allowances, sheltering £6,000 as an individual or £12,000 as a couple. The £3,000 allowance is permanently fixed, HMRC confirmed it is not index-linked and is not expected to rise.
How to Calculate Capital Gains Tax on Property
The process for calculating the capital gains tax on the property is explained below in steps:
- Start the calculation on the final agreed completion price on your contract, not the estate agent’s valuation or the asking price.
- Subtract the price that you pay at the time of purchasing the property, including the SDLT, survey fees and legal fees that you pay at that time.
- You should also deduct the costs of allowable improvements that you have made during the ownership of the property.
- Also deduct the selling price, including the survey costs and other legal fees at the time of sale. You also have to subtract the exempt allowance from the remaining gains.
- At the end, the amount that remains after subtraction of all these kinds of amounts,s multiply it with 18% if you are a basic taxpayer and with 24% if you are a higher rate taxpayer.
What Is the 60-Day Rule After Property Completion?
When you sell a residential property in the UK and make a taxable gain, HMRC requires you to report and pay any CGT due within 60 days of the completion date. It does not apply from the exchange of contracts, moving out, but from the day legal ownership transfers. This is done through HMRC’S online CGT on UK property account via the Government Gateway. If you do not pay this tax, you will have to pay £100 as a penalty fine.
How to Report and Pay Capital Gains Tax on Property
You can report and pay your CGT on property by the method that is given below
- Step 1. Create a Government Gateway Account: If you do not already have one, register at gov.uk/log-in-file-self-assessment-tax-return. You will need your National Insurance number and proof of identity.
- Step 2. Access the CGT on the UK Property Account: Log in to your Government Gateway account and go to the CGT on UK property service.
- Step 3. Report the Disposal: Enter the details of your property sale, including sale price, purchase cost, improvement costs, selling costs and any reliefs you are claiming, such as Private Residence Relief.
- Step 4. Calculate and Pay Your CGT: HMRC’s online tool will calculate your tax due based on the figures you enter, and payment can be made immediately online by bank transfer or debit card.
- Step 5. Include It in Your Self-Assessment Return: The 60-day return does not replace your annual Self Assessment. You must also declare the same disposal in your Self Assessment tax return at the end of the tax year.
Legal Ways to Reduce Capital Gains Tax on Property
Some legal methods to reduce the CGT rates on property are given below:
- Use your £3,000 annual exempt amount to reduce your taxable gain.
- Transfer partial ownership to your spouse before selling to use both allowances.
- Offset any capital losses from shares or other assets against your gain.
- Make pension contributions in the year of sale to lower your income band.
- Claim Private Residence Relief if the property was ever your main home.
Conclusion
Capital gains tax on property is the tax you pay on the profit when you sell a property that is not your main home. The good news is that with the right planning, claiming every relief and deduction you are entitled to can significantly reduce what you owe. Always report and pay within 60 days of completion to avoid automatic penalties. If your situation involves inherited property, multiple ownership periods or large gains, a qualified tax adviser is worth every penny before you sell.
