Capital Gains Tax on Property, When You Pay and How to Calculate It

When Does Capital Gains Tax Apply to Property?

Capital Gains Tax (CGT) is a tax charged by HMRC on the profit you make when you dispose of an asset that has increased in value. For property in England and Wales, CGT applies when you sell, gift, or otherwise dispose of a property that is not your only or main residence.

Common situations where CGT applies include:

• Selling a buy-to-let investment property
• Selling a second home or holiday property
• Selling a property you inherited (unless it was your main home)
• Gifting a property to someone other than your spouse or civil partner

Your main home is normally exempt from CGT under Private Residence Relief (PRR), see below.

CGT Rates on Residential Property in 2026

CGT rates on residential property are higher than those on other assets. Following the changes announced in the October 2024 Budget:

The rate that applies to you depends on your total taxable income in the year of disposal, including the gain itself. If a gain pushes you from the basic rate band into the higher rate band, the portion of the gain above the threshold is taxed at 24%.

The Annual Exempt Amount

Each individual is entitled to an annual exempt amount, a threshold below which CGT is not charged. In 2026, the annual exempt amount for individuals is £3,000. Any gain below this threshold in the tax year is free from CGT.

If you share ownership of a property with a spouse or civil partner, each of you is entitled to use your own annual exempt amount against your respective share of the gain.

Calculating Your Gain

Your taxable gain is broadly the sale price minus the original purchase price, adjusted for allowable costs. Allowable deductions include:

• Solicitor and estate agent fees at purchase and sale
• Stamp Duty Land Tax paid on purchase
• Capital improvement costs (extensions, loft conversions, new kitchens, not routine maintenance or repairs)
• RICS survey fees at purchase

**Example:**

Private Residence Relief

If the property was your main home for part of the ownership period, you are entitled to Private Residence Relief for those years, reducing your chargeable gain proportionally. The final nine months of ownership always qualify for PRR, regardless of whether you were living there, provided the property was your main home at some point.

If you let the property after it was your main home, you may also be entitled to Lettings Relief in certain circumstances, though this relief has been significantly curtailed and now only applies where you share the property with a tenant.

Reporting and Paying CGT

Since April 2020, sellers of residential property have been required to report and pay CGT to HMRC within 60 days of completion, not at the following January self-assessment deadline. This is done via HMRC's online Capital Gains Tax on UK property service.

Failure to report within 60 days results in automatic penalties. If you are in any doubt about your CGT position, instruct a qualified accountant or tax adviser before you complete the sale.

Planning Ahead

CGT planning is most effective before, not after, a disposal. Strategies to consider with a qualified adviser include timing the disposal across two tax years to use two annual exempt amounts, transferring an interest to a spouse or civil partner before sale, and ensuring all allowable costs are properly documented. Property Passport UK can assist with building a documented property history, useful when calculating allowable improvements costs for a HMRC return.