When CGT Applies to Property
You pay CGT on the gain (profit) when you sell or dispose of a property that isn't your main residence. This includes selling a buy-to-let, a holiday home, inherited property you've not lived in, land, or commercial property. It also applies if you gift a property to someone other than your spouse or civil partner.
Your main home is normally exempt under private residence relief (PRR), provided you've lived in it as your only or main residence throughout ownership. If you've let it out, lived elsewhere for part of the time, or used part of it exclusively for business, the relief may be partial rather than full.
CGT is charged on the gain, not the sale price. The gain is calculated as: sale price minus purchase price, minus allowable costs (stamp duty, legal fees, improvement costs — but not maintenance), minus your annual exempt amount.
CGT Rates and the Annual Exempt Amount
Residential property gains are taxed at higher rates than other assets. As of the 2024/25 tax year, the rates are 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. These rates apply to the portion of your gain that falls within each tax band after adding it to your other taxable income for the year.
The annual exempt amount — the tax-free allowance for capital gains — has been reduced significantly in recent years. For 2024/25 it stands at £3,000 per person (down from £12,300 in 2022/23). This means most property disposals will generate a taxable gain. Married couples and civil partners each get their own allowance, so jointly owned property benefits from two exempt amounts.
| Tax band | CGT rate on residential property | Annual exempt amount (2024/25) |
|---|---|---|
| Basic rate (up to £37,700 taxable income) | 18% | £3,000 |
| Higher rate (£37,701 to £125,140) | 24% | £3,000 |
| Additional rate (over £125,140) | 24% | £3,000 |
Private Residence Relief and Lettings Relief
Private residence relief (PRR) exempts gains on your main home. If you lived in the property for the entire period of ownership, the full gain is exempt. If you lived there for part of the time, the gain is apportioned. You always get relief for the final 9 months of ownership, even if you weren't living there — this is designed to give you time to sell after moving out.
Certain absences are also treated as periods of occupation: up to 3 years for any reason, any period working overseas, and up to 4 years working elsewhere in the UK (provided you lived there before and after). These rules can significantly reduce or eliminate a CGT bill on a former home.
Lettings relief is much more limited than it once was. It now only applies if you shared occupation of the property with a tenant — in other words, you let out a room while still living there yourself. The maximum relief is £40,000 per owner. For most buy-to-let situations where you moved out entirely, lettings relief no longer applies.
Calculating Your CGT Bill: A Worked Example
Suppose you bought a flat in 2015 for £180,000 (plus £1,500 in stamp duty and £1,200 in legal fees) and sell it in 2025 for £280,000 (with £3,000 in estate agent fees and £1,000 in legal fees). You lived in it for 5 years and then let it for 5 years.
- ▸Total gain: £280,000 minus £180,000 minus £1,500 minus £1,200 minus £3,000 minus £1,000 = £93,300
- ▸PRR portion: You lived there 5 of 10 years, plus the final 9 months count as occupation. PRR covers 5.75 of 10 years = 57.5% of the gain is exempt (£53,648)
- ▸Taxable gain before exemption: £93,300 minus £53,648 = £39,652
- ▸After annual exempt amount: £39,652 minus £3,000 = £36,652 taxable
- ▸Tax at higher rate (24%): £36,652 x 24% = £8,796 CGT bill
The 60-Day Reporting Deadline
Since April 2020, UK residents must report and pay CGT on residential property disposals within 60 days of completion. This is done via the Capital Gains Tax on UK property service on GOV.UK, which is separate from your self-assessment tax return. You must still declare the disposal on your annual tax return, but the payment is due within 60 days.
Miss the deadline and you'll face a £100 late filing penalty, with further penalties and interest accruing after 6 and 12 months. If you're unsure whether a gain is taxable — for example, because PRR calculations are complex — it's worth getting advice from an accountant before the 60-day window closes. The cost of professional advice is typically far less than the penalties for getting it wrong.
Strategies to Reduce Your CGT Bill
Timing your sale can make a difference. If you're near the end of a tax year and expect lower income the following year, completing the sale in April rather than March could mean part of your gain is taxed at 18% instead of 24%. Similarly, if you own a property jointly, ensure both partners' annual exempt amounts are being used.
Transferring a share of a property to your spouse or civil partner before sale is a legitimate and common tax planning strategy. Transfers between spouses are CGT-free, and the receiving spouse can then use their own annual exempt amount and potentially their basic-rate band against the gain. This must be a genuine transfer, not a sham, and professional advice is recommended.
Finally, ensure you claim all allowable costs. Stamp duty paid on purchase, solicitor fees on both purchase and sale, estate agent fees, and any capital improvements all reduce your taxable gain. Costs of maintenance, mortgage interest, and furnishing do not count.
Frequently Asked Questions
Do I pay capital gains tax when I sell my home? No — if the property has been your main residence throughout the entire period of ownership, Private Residence Relief (PRR) covers the whole gain and no CGT is payable. PRR can be partial if you let the property, used it for business, or owned it before or after living there. The last 9 months of ownership always qualify for PRR even if you have moved out.
What is the capital gains tax rate on property in 2024/25? Residential property CGT rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers (reduced from 28% in the October 2024 Budget). Your rate depends on whether the gain, when added to your other taxable income for the year, pushes you into the higher-rate band.
How do I calculate my capital gains on an investment property? Start with the sale price, deduct the purchase price, SDLT at purchase, legal fees at purchase and sale, estate agent commission, and any capital improvement costs (extensions, conversions — not maintenance). The result is your total gain. Subtract your annual exempt amount (£3,000 for 2024/25) and any unused losses from other capital disposals to get your taxable gain.
If I rent out my former home, do I still get CGT relief? Yes — PRR covers the period you lived there plus the final 9 months regardless. Letting Relief (up to £40,000) was abolished in April 2020 except for cases of shared occupancy. You will pay CGT on the remaining gain attributable to the letting period.
Can I avoid CGT by transferring property to my spouse before selling? Yes — transfers between spouses and civil partners are CGT-exempt. If you transfer a share before sale, your spouse uses their own annual exempt amount and potentially their basic-rate band against the gain. Both must be UK resident, and the transfer must be genuine. This is a legitimate and commonly used strategy.
Is capital gains tax payable on inherited property? If you sell an inherited property, CGT is calculated on the gain from the date of inheritance (when the value was 'stepped up' to probate value) to the date of sale. Any increase in value during the deceased's lifetime is not subject to CGT — it may have been subject to inheritance tax instead.
Key Takeaways
- ✓CGT applies when you sell any property that isn't your main residence
- ✓Rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers on residential property
- ✓The annual exempt amount is just £3,000 per person for 2024/25
- ✓You must report and pay within 60 days of completion via HMRC's online service
- ✓Private residence relief can exempt all or part of the gain if you lived in the property
- ✓Capital improvements reduce your gain — keep all receipts