Selling a property that is not your main home can trigger a capital gains tax bill. Understanding how to calculate the gain, which reliefs apply, and the reporting requirements ensures you pay the correct amount — and not a penny more.
When CGT Applies to Property
CGT applies when you sell or dispose of UK residential property that is not your main home:
- Buy-to-let properties
- Second homes and holiday homes
- Inherited properties (unless your main residence)
- Properties used partly for business
- Formerly your home (if you moved out before selling)
Your main residence is exempt from CGT under Private Residence Relief (PRR).
CGT Rates on Property (2025/26)
| Your Income Tax Band | CGT Rate on Property |
|---|---|
| Basic rate | 18% |
| Higher rate | 24% |
| Additional rate | 24% |
These rates are higher than the standard CGT rates (10%/20%) that apply to shares and other assets.
Note: Your gain is added on top of your income to determine the rate. If your income is £40,000 and your gain is £20,000, the first £10,270 of gain (up to the £50,270 higher rate threshold) is taxed at 18% and the remaining £9,730 at 24%.
Calculating Your Gain
| Step | Amount |
|---|---|
| Sale price | £350,000 |
| Less: Purchase price | £200,000 |
| Less: Allowable purchase costs (stamp duty, legal fees) | £8,000 |
| Less: Improvement costs (extension, loft conversion) | £30,000 |
| Less: Sale costs (agent fees, legal fees) | £8,500 |
| Total gain | £103,500 |
| Less: Annual exempt amount | £3,000 |
| Taxable gain | £100,500 |
What Counts as an Improvement
You can deduct the cost of improvements that add value to the property — but not maintenance or repairs:
| Deductible (Improvements) | Not Deductible (Maintenance) |
|---|---|
| Extension or loft conversion | Repairing a roof leak |
| New kitchen or bathroom | Painting and decorating |
| Central heating installation | Boiler servicing |
| Adding a driveway | Garden maintenance |
| Double glazing | Replacing broken windows like-for-like |
Keep all receipts for improvement work — you may sell the property years or decades later and need this evidence.
Private Residence Relief (PRR)
Your main home is fully exempt from CGT. But partial relief may apply if:
- You lived in the property for part of the ownership period
- The property was used partly for business
- You had more than one residence
Partial PRR Calculation
If you owned a property for 10 years but only lived in it for 6 years (plus the automatic last 9 months of ownership):
| Period | Months | Eligible for PRR? |
|---|---|---|
| Lived in property | 72 | Yes |
| Last 9 months (automatic) | 9 | Yes |
| Remaining period | 39 | No |
| Total ownership | 120 | 81 months exempt |
PRR fraction: 81/120 = 67.5% of the gain is exempt.
The Last 9 Months
The final 9 months of ownership are always covered by PRR, even if you have already moved out. This gives you breathing room when transitioning between homes.
Letting Relief
If you let out a property that was previously (or simultaneously) your main residence, you may qualify for letting relief of up to £40,000 — but only if you were in shared occupation with the tenant at some point during the letting period. The relief is now much more restricted than it used to be.
Reporting and Payment: The 60-Day Rule
When you sell UK residential property at a gain, you must:
- Report the disposal to HMRC within 60 days of completion
- Pay the estimated CGT within the same 60 days
- Include the disposal on your Self Assessment tax return at the end of the year
Use HMRC’s online ‘Report and pay Capital Gains Tax on UK property’ service. You will need a Government Gateway account.
Late Reporting Penalties
| How Late | Penalty |
|---|---|
| Up to 6 months | £100 |
| 6–12 months | £300 or 5% of tax (whichever is greater) |
| 12+ months | £300 or 5% of tax (whichever is greater) + daily penalties possible |
Late payment also incurs interest at the prevailing HMRC rate.
Strategies for Reducing CGT on Property
1. Use the Annual Exempt Amount
Every individual has a £3,000 annual exempt amount. If you own a property jointly with a spouse, you each get £3,000 — saving up to £1,440 in CGT (at 24%).
2. Transfer to Spouse Before Sale
Transfers between spouses are CGT-free. If one spouse has a lower income, transferring the property to them before sale means more of the gain is taxed at 18% instead of 24%.
3. Deduct All Allowable Costs
Improvement costs, purchase costs, and sale costs all reduce the taxable gain. Keep meticulous records.
4. Time Sales Across Tax Years
If possible, exchange contracts in March and complete in April — using annual exempt amounts from two tax years.
5. Invest in Improvements
Capital improvements reduce the gain. If you plan to sell soon, improvements that add value both increase the sale price and reduce the CGT through a higher cost base.
6. Consider Main Residence Elections
If you own two properties, you can elect which is treated as your main residence for PRR purposes. Choosing wisely can shelter the more valuable property from CGT. The election must be made within two years of acquiring the second property.
For a broader overview, see our capital gains tax guide and use the stamp duty calculator to understand costs when buying.