Capital gains tax on property is usually due on UK residential property that is not your only or main home, such as a buy-to-let or a second home.
It should be noted that gains are calculated on profit only, that the annual exempt amount (the annual CGT allowance) is £3,000 per person for the 2025/26 and 2026/27 tax years, and that basic rate taxpayers pay 18% on property gains while higher rate taxpayers pay 24%. Couples can combine their capital gains tax allowances for a total of £6,000 tax free in a single tax year.
Understanding how this rental income tax works, what reliefs are available and when you must report to HMRC can save you thousands and keep you on the right side of the law. In this guide, we explain the rules, rates and strategies for capital gains tax on property in the 2025/26 and 2026/27 tax years.
What is capital gains tax on property in the UK?
Capital gains tax (CGT) on property is the gains tax charged on the profit you make when you sell, gift or otherwise dispose of UK residential property that is not fully covered by tax reliefs. Capital gains tax is charged on profits from asset sales, not on the full selling price. You pay tax only on the gain, which is the sale proceeds minus the original purchase price and allowable costs.
Here is a straightforward example. Suppose you bought a flat in Manchester in 2012 for £140,000 and sold it in 2026 for £260,000, spending £20,000 on stamp duty land tax, legal fees and qualifying improvements along the way. Your total capital gain would be £260,000 minus £140,000 minus £20,000, giving a gross gain of £100,000 before any reliefs or exemptions.
The rules apply to UK residential property, commercial property and overseas property held by a UK resident. However, our main focus here is capital gains tax on UK property.
It is worth noting that HMRC treats not just sales but also transfers below market value and certain gifts as disposals for property capital gains tax purposes. That means capital gains on property can arise even when no cash changes hands.
Do you pay capital gains tax on your main residence?
In most cases you do not pay capital gains tax on your main residence. When selling your primary residence, you generally do not pay CGT on property due to private residence relief. You usually don’t pay CGT on your main home, and private residence relief exempts your main residence from CGT.
For full relief from capital gains tax on residential property, the following conditions must be met:
- The property has been your only or main residence throughout the entire period of ownership.
- You actually lived there as your home.
- The grounds do not exceed the permitted area (normally no more than 5,000 square metres, including the building’s footprint).
- No part of the property was used exclusively for business premises.
Capital gains tax on property could still arise on a main home if, for example, you used part of the house exclusively as a dental surgery or let out a self-contained basement flat to a tenant. In those situations, you can claim partial relief for the portion you occupied as your home.
The final 9 months of ownership normally qualify as deemed occupation for private residence relief, even if you moved out before the sale. So if you owned a house for 10 years and lived in it for the first 9 years and 3 months, the entire period would be covered. If you lived there for only 6 years out of 14, those final 9 months still count, reducing your taxable gain.
The rules on what counts as your main residence can be nuanced, especially where a property has also been used as a furnished holiday let and is affected by the FHL tax reforms. We at The Taxcom can review periods of occupation, absences and nominations to confirm whether your sale is fully tax free.
Capital gains tax on second homes and buy-to-let property
Capital gains tax on property on second property almost always applies to a second home, holiday home or buy-to-let. Selling secondary properties typically incurs CGT upon sale, and CGT applies when selling buy-to-let properties. Unless you have significant private residence relief available from a genuine period of occupation, the gain will be chargeable.
HMRC considers a property to be a second home or investment property when it is not your nominated main residence. A flat you let to tenants in Salford, a holiday cottage in Cornwall or a city apartment you keep for occasional use all fall into this category, and understanding how rental income is taxed in the UK is essential alongside these capital gains rules.
The basic calculation for capital gains tax on property sale works as follows:
| Step | Description |
| 1 | Sale price |
| 2 | Minus purchase price |
| 3 | Minus buying and selling costs (estate agent fees, legal fees, stamp duty on purchase) |
| 4 | Minus qualifying capital improvement costs |
| 5 | Minus annual exempt amount (£3,000 per person) |
| 6 | Equals taxable gain |
Here is a worked example of capital gains tax on second home. You bought a buy-to-let property for £180,000 in 2015 and sold it for £280,000 in 2026. Transaction costs and improvements totalled £20,000. Your gross gain is £80,000. Subtract the annual CGT allowance of £3,000 and your taxable gain is £77,000.
Owning multiple UK residential properties can create planning opportunities, such as main residence nominations or timing sales over different tax years, which we at The Taxcom can help structure.
How much is capital gains tax on property UK?
The amount of property capital gains tax you pay depends on your income tax band and the size of your taxable gain after reliefs and allowances. The current capital gains tax rates for UK residential property in the 2025/26 and 2026/27 tax years are:
- 18% for gains falling within the basic rate band
- 24% for gains falling into the higher or additional rate band
These rates were updated after CGT rates on property changed on 30 October 2024, when the higher rate was reduced from 28% to 24%.
To work out which rate applies, add your taxable income to your net gain after allowances and compare the total to the basic income tax band threshold of £37,700. Only the portion of your gain that sits within any unused basic rate band is taxed at 18%. The rest is taxed at 24%.
Basic rate taxpayer example: Taxable income of £30,000, taxable gain of £77,000. You have £7,700 of unused basic rate band (£37,700 minus £30,000). So £7,700 is taxed at 18% (£1,386) and £69,300 at 24% (£16,632). Your capital gains tax bill is £18,018.
Higher rate taxpayer example: Taxable income of £60,000, taxable gain of £77,000. No basic rate band remains, so the full £77,000 is taxed at 24%. Your tax bill is £18,480.
Trustees and personal representatives usually pay CGT at 24% on residential property gains with no basic rate band allocation.
For comparison, in the U.S., capital gains tax rates depend on the property holding period. Short-term capital gains are taxed at the ordinary income tax rates, while long-term capital gains rates can be 0%, 15% or 20% depending on income. Primary homeowners in the US may exclude up to $250,000 in gains when selling their home. The UK system works differently, relying on income tax reliefs and private residence relief rather than holding period distinctions.
How to calculate capital gains tax on property step by step
Calculating capital gains tax on property follows a logical sequence. Here is a practical, numbered walkthrough:
- Identify the disposal date and proceeds. Use the completion date and the sale price stated on your completion statement.
- Deduct the purchase price. This is what you originally paid for the property.
- Deduct allowable buying and selling costs. These include legal fees, estate agent fees, stamp duty on purchase, conveyancing and valuation fees. You can deduct costs involved in both acquiring and disposing of the property.
- Deduct qualifying capital improvements. Only capital expenditure that enhanced the property’s value counts. Routine repairs and maintenance do not qualify. Keep invoices as evidence of certain costs.
- Apply reliefs. If any period qualifies for private residence relief or other income tax reliefs, reduce the gain accordingly.
- Subtract the annual exempt amount. The capital gains tax allowance is £3,000 per person for 2025/26 and 2026/27. Couples who both own the property can potentially use £6,000 between them.
- Split the gain by rate. Add your taxable income to the remaining gain. Any portion within the basic rate band (£37,700 threshold) is taxed at 18%. The excess is taxed at 24%.
- Calculate the tax due. Multiply each portion by the applicable rate and add together.
Note that you cannot deduct mortgage interest from your capital gains calculation. Mortgage interest is a revenue cost relating to financing, not a capital cost of the property itself.
If you are unsure about any step, we at The Taxcom can run the calculation, cross-check figures against HMRC rules and prepare a capital gains tax computation ready for your tax return.
Capital gains tax on property calculator tools
Online capital gains tax on property calculator tools can be useful for quick estimates, but they do not replace tailored professional advice. A typical property capital gains calculator asks you to input the purchase price, sale price, dates, improvement costs and your income level, then estimates the potential tax due at 18% and 24%.
However, a CGT calculator property tool may not fully account for complex reliefs such as periods of deemed occupation, partial business use, letting relief or historic non-resident status. These can materially change the outcome.
We at The Taxcom provide an adviser-led capital gains tax UK property calculator review. We take your documents, check HMRC guidance and produce a detailed written computation. We encourage you to use any online calculator only as a starting point and to contact us before exchanging contracts so that tax planning can still be implemented.
Annual CGT allowance, tax free amount and other reliefs
The annual CGT allowance (also called the annual exempt amount) works as a tax free allowance. For the 2026/27 tax year, it stands at £3,000 per person. The capital gains tax allowance is frozen until 2031, meaning no increase is expected in the near term.
Critically, an unused CGT allowance cannot be carried forward to the next year. If you do not use it, you lose it. This makes timing multiple property and share disposals across different tax years important for maximising tax free gains.
Couples who jointly own a property can each use their annual exempt amount, potentially making £6,000 of property capital gains tax free in a single tax year.
Other key reliefs relevant to property gains include:
- Private residence relief for your only or main residence
- Lettings relief (now restricted to situations where you shared occupancy with the tenant)
- Business asset disposal relief where property was used in a qualifying trade
- Relief on personal possessions and other assets disposed of at a loss, which can offset property gains
We routinely review clients’ sale histories and unused losses to ensure all available capital gains tax relief and carried-forward capital losses are used before any tax is paid. We also consider the impact on other taxes, national insurance contributions and your personal allowance.
When do you pay capital gains tax on property?
For UK residential property, you must report and pay any capital gains tax within 60 days of completion of the sale or other disposal. You must report CGT within 60 days of selling property. This deadline applies to UK residents and non-residents where a chargeable gain arises. A UK Property Disposal return must be filed online with HMRC.
If you are already within Self Assessment, you will also need to report the gain on your annual tax return, even though the capital gains tax was paid earlier under the 60-day rules. The reference numbers from the property return must be included.
Missing the deadline carries real consequences:
- Fixed penalties of £100 (and a further £100 after 6 months)
- Daily penalties in serious cases of prolonged delay
- Interest charged on late-paid CGT from the 61st day
We at The Taxcom can handle the entire reporting process, from preparing the computation to submitting the UK residential property return and arranging payment to HMRC on time.
Capital gains tax on inherited property and gifted property
Inherited properties incur no CGT until sold. You do not pay capital gains tax at the point of inheriting property. Liability arises only when you later sell or gift the inherited property and make a gain. Inherited property typically has a stepped-up cost basis to fair market value at the date of death.
For example, if your mother’s Manchester terrace was worth £200,000 when she passed away and you later sold it for £250,000, your gain for CGT purposes would be £50,000 (minus selling costs and any improvements you made), not the difference from what she originally paid.
Gifting property to a spouse or civil partner who lives with you is usually tax free for CGT purposes (treated as a no-gain, no-loss transfer). However, gifting property is considered a disposal for CGT purposes when transferring to adult children or other relatives, potentially triggering an immediate chargeable disposal at market value even though no money changes hands.
Property occupied by a dependent relative, or property used in a family business, may attract specific tax relief. Where both inheritance tax and capital gains tax could apply, we at The Taxcom can coordinate the figures so the overall family tax position is managed efficiently.
How to avoid or reduce capital gains tax on property legally
The goal here is to minimise capital gains tax on property within UK law, not to evade tax. HMRC scrutinises residential property disposals closely, particularly through its Let Property Campaign. Practical planning strategies include:
- Use both spouses’ allowances. Transfer an interest in the property to your spouse or civil partner before sale to use both annual exempt amounts, making up to £6,000 of gains tax free.
- Time the disposal around 5 April. If you can straddle two tax years, you may be able to use two years’ worth of annual allowances and keep more of your gain within the basic rate band.
- Nominate the right main residence. Ensuring a property genuinely qualifies as your main residence for a sufficient period and making a timely nomination can deliver significant savings on capital gains tax on second homes.
- Maximise improvement cost evidence. Keep all invoices, contracts and photographs of capital improvements. These associated costs directly reduce your taxable gain.
- Crystallise losses on other assets. If you hold shares, premium bonds, UK government bonds or other income-producing assets that are sitting at a loss, selling them in the same tax year can offset your property gains.
We encourage you to contact The Taxcom early in the process, for example when you first instruct an estate agent, so we can model different capital gains tax property scenarios and help reduce your eventual CGT property bill. Your individual circumstances matter for the early planning.
Capital gains tax on overseas property for UK residents
If you are a UK resident, you are generally liable to UK capital gains tax on property sold overseas, whether that is a villa in Spain, an apartment in Dubai or a chalet in France. The same capital gains tax rates apply as for UK residential property, and the gain is calculated in sterling, requiring conversion of all figures using appropriate exchange rates at the dates of purchase and sale.
Some countries will also tax the gain locally. Double tax relief may be available to prevent you being taxed twice on the same property capital gains. The tax implications can be significant, and carried interest or other income from overseas property should also be considered.
Rules for non-UK residents disposing of UK residential property are different again. Non-residents must report all disposals within 60 days, even where no tax is due or a loss arises.
We at The Taxcom can coordinate with foreign advisers and factor foreign tax credits into the UK capital gains computation, drawing on our expert accountancy and taxation services. If you have a cross-border property portfolio, bespoke advice is essential.
How The Taxcom helps with capital gains tax on property
The Taxcom is an accountancy and tax firm specialising in HMRC disputes, tax investigations and complex personal tax matters, including capital gains tax on UK residential property.
We can calculate capital gains on second property, advise on available tax relief, complete the 60-day HMRC UK Property Disposal return and handle all HMRC correspondence on your behalf. We also offer online tax calculators, retirement planning tools and management accounts support, helping you consider the wider impact of selling property on your overall finances.
Get in touch before you exchange contracts so that we can start planning immediately.
FAQs: Capital gains tax on property
Do I have to register with HMRC before I sell a rental property?
You do not need to register with HMRC in advance purely to sell a property. However, if a taxable gain arises you will need a Government Gateway account to file the UK Property Disposal return within 60 days of completion. If you are a landlord already in Self Assessment, check that your existing HMRC login details still work well before the sale completes.
Can I claim capital gains tax relief if I lived in my buy-to-let for a short period?
Living in a rental property as your main home for a genuine period can secure private residence relief for that portion of ownership. This can reduce capital gains tax on property noticeably. However, moving in for a very short period shortly before sale purely for tax reasons is likely to be challenged by HMRC as not genuine occupation. The occupation must be real and substantiated.
What happens if I sell a property at a loss?
No capital gains tax is due if you sell below your allowable cost. The capital loss can usually be registered with HMRC and set against current or future capital gains from other income or other assets. There is generally a four-year time limit for claiming losses, and The Taxcom can help you claim within that window.
Can HMRC reopen my capital gains tax calculation later?
HMRC can enquire into a capital gains tax on property return within normal enquiry windows, typically up to 12 months after filing. Where they suspect careless or deliberate errors, the window extends significantly. Keeping purchase records, invoices and legal papers is essential, and specialist tax investigations experts to deal with HMRC enquiries can be invaluable in higher-risk cases.
Do I pay capital gains tax on money I give to my children from a property sale?
The capital gains tax charge arises when you dispose of the property, regardless of what you later do with the proceeds. Gifting sale proceeds to your children does not itself create extra CGT. However, it may have inheritance tax implications depending on the amounts involved and the timing of the gift.