Capital Gains Tax When Selling Property

When you sell a property in the UK, you may need to pay Capital Gains Tax (CGT) on any profit you make — unless it's your main home and qualifies for full relief. If you do owe tax, you must report and pay it within 60 days of the sale. This article explains how CGT applies to property sales, what reliefs are available, and how to work out your tax bill.

What is Capital Gains Tax on property?

Capital Gains Tax is a tax on the profit (or 'gain') you make when you sell or dispose of a property. You may need to pay CGT if you sell:

• Buy-to-let properties
• Business premises
• Land
• Inherited property

You do not usually pay CGT when you sell your main home, provided it qualifies for Private Residence Relief (explained below).

Private Residence Relief for your main home

Private Residence Relief can reduce or eliminate CGT when you sell a property that has been your main home. The relief applies to:

• A house or flat
• A houseboat or fixed caravan that is your home
• Part of a house which is your home
• Part of the garden attached to your home

If the property has been your only home for the entire time you owned it, you will not pay CGT on the sale. However, relief may be restricted if you:

• Used part of the property exclusively for business purposes
• Let out part of the property
• Owned a large amount of land with the property
• Had more than one home and did not live in this property for the full period of ownership

If the property was occupied by a dependent relative, you may also be able to claim relief in certain circumstances.

When you need to pay CGT on property

You will need to pay CGT if you make a profit when selling property that is not your main home. This includes second homes, buy-to-let properties, and investment property.

You do not usually need to pay tax on gifts to your husband, wife, civil partner or a charity.

Working out your gain

Your gain is usually the difference between what you paid for the property and the amount you received when you sold it.

In some situations, you must use the market value of the property instead of the actual sale price. This applies if:

• The property was a gift (unless to your spouse, civil partner or charity)
• You sold it for less than it was worth to help the buyer
• You inherited it
• You owned it before April 1982

Jointly owned property

If you own property jointly with other people, you work out the gain only for your share of the property.

Deducting costs

You can deduct the following costs from your gain:

• Estate agents' and solicitors' fees
• Costs of improvement works, such as an extension

Normal maintenance costs, such as decorating, cannot be deducted.

CGT rates and allowances

Once you have calculated your gain and deducted allowable costs, you can work out whether you need to pay CGT. You may have a tax-free allowance (known as the Annual Exempt Amount) which you can use to reduce your taxable gain. Any gain above this allowance will be taxed at the CGT rates that apply to property.

The exact rates and allowances depend on your circumstances and the tax year in which you made the sale.

Reporting and paying CGT on property

You must report and pay any Capital Gains Tax on most sales of UK property within 60 days of completion. This applies even if you do not usually complete a Self Assessment tax return.

The 60-day deadline applies to property sales that completed on or after 6 April 2020.

What if you made a loss?

If you made a loss on the property sale, different rules apply for reporting this to HMRC.

Property from someone who has died

If you are selling property that belonged to someone who has died, you will need to include this information when reporting the estate to HMRC as part of the probate process.

Business property and other reliefs

You may get tax relief if you sell property that you use for business purposes. This relief may reduce or delay the amount of Capital Gains Tax you pay.

If you are a property developer and the purpose of your business is to buy and sell property, you do not pay Capital Gains Tax. Instead, you pay:

• Income Tax if you are a sole trader or partner
• Corporation Tax if you are a limited company

Selling overseas property

If you are resident in the UK, you pay Capital Gains Tax when you sell overseas property. You may also have to pay tax in the country where the property is located. If you are taxed twice, you may be able to claim relief.

Non-residents who return to the UK within 5 years of leaving may have to pay UK tax on overseas property gains made while they were abroad.

Special circumstances

There are special rules for calculating your gain if you:

• Live abroad
• Sell a lease or part of your land
• Have your property compulsorily purchased
• Are selling property from the estate of someone who has died

Limited companies that dispose of a single residential property worth more than £2 million are also subject to special rules.

Sources

• Tax when you sell property
• Private Residence Relief (Self Assessment helpsheet HS283)
• Report and pay your Capital Gains Tax
• Capital Gains Tax overview

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.