Capital Gains Tax on Property

Capital Gains Tax is only payable on profit (gains) from the sale of any assets, including property (only on property that isn't your main residence).

To work out how much your Capital Gains Tax bill will be, you need to deduct the amount you originally paid for the property from the final sale price that you sell the property for. Don't forget to deduct costs involved with buying and selling the property. This can include things like stamp duty, improvements to the property, estate agent fees etc.

Also deduct your annual CGT allowance (£3,000 for 2024/25), from your profit.

You can also offset losses you've made from selling other assets or properties from your overall CGT bill. For example, if you make a loss of £25,000 from the sale of another asset, then you can offset this against your gains overall and reduce your CGT bill.

Losses from the sale of assets should be claimed on your self assessment tax return. Losses can be claimed up to four years after they were incurred.

If you pay income tax at the basic rate, the CGT rate you pay will depend on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

• 1. Work out your overall taxable income - this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.
• 2. Work out your total taxable gains.
• 3. Deduct your tax-free CGT allowance from your total taxable gains.
• 4. Add this amount to your taxable income.
• 5. If this amount is within the basic Income Tax band, you’ll pay 18% on residential property (10% on gains from other assets). You’ll pay 20% on any amount above the basic tax rate (or 24% on residential property and 28% on carried interest).

If you have gains from both residential property and other assets

You can use your tax-free allowance against the gains that would be charged at the highest rates (for example where you would pay 24% or 28% tax).

If you are a UK resident, you should report and pay any Capital Gains Tax on property within 60 days of selling the property. If you are a non-resident of the UK and sell UK property, you should still report it within 60 days, even if there is no tax to pay.

You may have to pay interest and a penalty if you do not report and pay on time.

You may have to pay Capital Gains Tax if you’ve let out your home to a tenant. You are not considered to be letting out your home if either:

• you have a lodger who shares living space with you
• your children or parents live with you and pay you rent or housekeeping

How much you pay depends on how long you lived in your home.

However, if you lived in your home at the same time as tenants, you may qualify for Letting Relief on gains you make when you sell the property.

You can get the lowest of the following:

• the same amount you got in Private Residence Relief
• £40,000
• the same amount as the chargeable gain you made while letting out part of your home

Letting Relief does not cover any proportion of the chargeable gain you make while your home is empty.

Seek advice from a tax professional.

The Capital Gains Tax allowance on property for 2024/25 is £3,000. This means you don't pay any CGT on the first £3,000 you earn from the sale of the property.

You can deduct costs of buying, selling or improving your property from your gain. These include:

• Estate agent's fees and solicitors’ fees.
• Costs of improvement work, for example for an extension - normal maintenance costs like decorating do not qualify.
• Costs of transfer - e.g. stamp duty land tax.
• Incidental costs of sale - This expenditure is allowable where it is incurred wholly and exclusively with the asset sale. For example:
  • Commission paid on the sale e.g. share brokerage costs
  • The cost of advertising to find a buyer
  • Professional fees e.g. the cost of a valuation

However, you cannot deduct certain costs, such as interest on a loan or mortgage to buy the property.

Keep detailed records and receipts to ensure you can substantiate your claims if needed.

CGT is generally payable on the sale of second homes and buy-to-let property.

You do not pay CGT on the sale of your main home.

If you are a UK resident, you should report and pay any Capital Gains tax on property within 60 days of selling the property. If you are a non-resident of the UK and sell UK property, you should still report it within 60 days, even if there is no tax to pay.

You may have to pay interest and a penalty if you do not report and pay on time.

If you’re a UK resident, you do not need to report your gains online if your total gains are less than the tax-free allowance.

Use an online Capital Gains Tax on UK property accounts to report your disposal to HMRC. You’ll need to have a Government Gateway user ID and password. If you do not have a user ID, you can create one the first time you register.

You can use a tax agent, such as dns accountants to report the sale of UK property and land to HMRC on your behalf. To do this you will need to:

• 1. Set up an online Capital Gains Tax on UK property accounts.
• 2. Give the agent your Capital Gains Tax on UK property account number and country of residence, so they can email you a link to request access to your Capital Gains Tax on UK property account.
• 3. Accept the authorisation request in the email.

Your agent will then be able to report and manage your account and returns on your behalf.

If you cannot report online, you can use a Capital Gains Tax on UK property form to report your disposal by post. HMRC will send you a 14-digit payment reference number starting with ‘x’ after you’ve reported your disposal. You’ll need that reference number to pay any tax you owe before the deadline.

Use your own Capital Gains Tax on a UK property account to report for someone else. You’ll need proof you’re allowed to report on their behalf, such as a lasting power of attorney. If the person has died, you’ll need their date of death.

Seek professional advice if you are unsure on reporting and paying Capital Gains Tax to ensure you get the correct Capital Gains Tax bill.

Inherited property

If a relative leaves you UK residential property in their will, you will inherit the property at its market value at the time of the relative's death. Although CGT isn't charged on death, the property will be included in the estate of the person that has died. Inheritance tax may well be payable on the property from the estate.

If in the future, you decide to sell the property you inherited (without it having been your main residence) there could be a CGT bill to be paid on sale of the property if you make a profit on sale.

You'll pay Capital Gains Tax on the gain based on the property's value when you sell it, compared to its value on the date of death. If the property has increased in value, you will have made a taxable gain. You can deduct any associated selling costs involved from the gain.

Gifted property

If someone gifts you a residential property whilst they are still alive, it is called 'a gift with reservation'. A gift is still part of a person's estate for IHT calculations when the giver passes away (unless the giver survives for 7 years or more after the gift was given). Generally, inheritance tax might be due if you do not live for seven years after making it.

A gift of property is subject to CGT, which is charged on any profit arising, or treated as arising, on the gift.

Where a gift is made to a close family member, the market value of the asset is substituted for any sums which are actually paid and CGT is charged on the gain deemed to arise.

The gain subject to CGT is calculated as the increase in value arising between the date of acquisition and the date of disposal, less the purchase price, any capital improvement costs and any associated costs of purchase or gift, e.g. SDLT, legal fees and estate agent’s fees.

Gifts of property are deemed to be made at market value for CGT purposes, other than where the gift is to a spouse or civil partner.

Where the property gifted was the donor’s main home, Principal Private Residence relief (PPR) may exempt some or all of the gains from CGT. And if the recipient lives in the property as their main residence, they may also qualify for PPR when they come to sell the property.

One of the other ways that you can mitigate Capital Gains Tax (CGT) and Inheritance Tax is with the use of trusts.