Capital gains tax on property - Which? (2024)

Do I pay capital gains tax on property?

If you sell a property in the UK, you might need to pay capital gains tax (CGT) on the profits you make.

You generally won't need to pay the tax when selling your main home.

However, you will usually face a CGT bill when selling a buy-to-let property or second home. You may also need to pay CGT if your home is partly used as a business premises, or if you lease out part of your property.

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Video: capital gains tax on property

The video shows how capital gains tax works when you sell a property that's not your main home.

CGT rates on property

In the UK, you pay higher rates of CGT on property than other assets.

Basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.

With other assets, such as shares, the basic-rate of CGT is 10%, and the higher-rate is 20%.

Bear in mind that any capital gains will be added to your other income sources when working out which income tax bracket you'll fall into for the year, and therefore might push you into a higher bracket.

All taxpayers have an annual CGT allowance, meaning they can earn a certain amount tax-free.

In 2023-24 you can make tax-free capital gains of up to £6,000 - down from £12,300 in 2022-23. The allowance is due to be cut further in 2024-25, so you can earn just £3,000 tax-free.

Couples who jointly own assets can combine this allowance, potentially allowing a gain of £12,000 without paying any tax.

You're not allowed to carry over any unused CGT allowance into the next tax year - so if you don't use it, you'll lose it.

You can find out more in our guide to capital gains tax rates and allowances.

How much CGT will I pay?

As the name suggests, CGT is only charged on the gains you make (the profit), rather than the full amount you sell the property for.

To work out your gain, you can deduct the amount you originally paid for the property from the sales price.

You can also deduct any legitimate costs involved with buying and selling the property. This includes things like broker fees, stamp duty, and some improvements to the property that were made while you owned it.

You can also offset losses you've made when selling other assets. For instance, if you own several properties and make, say, a £50,000 loss when selling one of them, you can use that against the gains you make from another property and therefore reduce your overall CGT bill.

You should claim any losses on your self-assessment tax return, or by calling HMRC. You can claim losses up to four years after they were incurred.

For any taxable gains above the tax-free allowance of £6,000 in 2023-24 (£12,300 in 2022-23), you'll pay the CGT property rates.

  • Do your 2022-23 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

When is capital gains tax on property due?

For UK properties sold on or after 27 October 2021, you must pay the tax owed within 60 days of the completion of the sale or disposal.

You'll do this by submitting a 'residential property return' and making a payment on account.

For property sales made between 6 April 2020 and 26 October 2021, the window to pay your CGT bill was 30 days.

What can I deduct from my taxable gain?

You're allowed to deduct certain costs from your gain, if they're involved with buying and selling the property. These include:

  • solicitor and estate agent fees
  • stamp duty when buying the property.

Costs involved with improving the property, such as paying for an extension, can also be taken into account when working out your taxable gain.

However, you're not allowed to deduct costs involved with the upkeep of a property. You're not allowed to deduct mortgage interest either (though that can reduce the tax you pay on rental income).

Example of selling a second home

Someone is selling a second home in England in 2023-24 for £220,000 after buying it 10 years ago for £120,000.

Their capital gain is the increase in the property value, which is £100,000.

However, they spent £5,000 on solicitor fees and estate agent fees when selling the property, which reduces their gain to £95,000.

They have no other gains or losses, so they can simply use their £6,000 CGT allowance - reducing the taxable part of their gain to £89,000.

The rate of CGT they'll pay depends on their other income. In this case, let's say it's £25,000.

This means they'd pay 18% basic-rate CGT on £25,270 of their gain (taking them up to the threshold of £50,270) - coming in at £4,548.60.

They'd have to pay the higher rate of 28% on the remaining £63,730, which is £17,844.40.

Altogether, the CGT bill would be £22,393.

Capital gains tax on your main home

In most cases, you won't need to pay CGT when selling the property you live in, because you will be entitled to 'private residence relief'.

You won't need to pay CGT for the time a property was your main residence, plus the past nine months of ownership (even if you weren't living in the property during those nine months).

People with a disability, or those who move into a care home, can claim for up to the past 36 months of ownership.

That said, you may have a capital gains tax bill to pay if you:

  • develop your home, for example, by converting part of it into flats
  • sell part of your garden, and your total plot - including the area you're selling - is more than half a hectare (1.2 acres)
  • use part of your home exclusively for business
  • let out all or part of your home - this doesn't include having a single lodger if you are living in the property, too
  • moved out of your property nine months or more ago - to move into a partner's home, for example
  • bought a home for the purpose of renovating it and selling it on.

Which property is my main home?

If you use more than one home, you can nominate which will be tax-free for CGT purposes. It doesn't have to be the one where you live most of the time.

Generally, it makes sense to nominate the property that's you expect to make the largest gain when you come to sell it. You have two years from when you get a new home to make the nomination.

Married couples and civil partners can have only one main home between them, but unmarried couples can each nominate a different home.

Remember, you don't get tax relief if you bought your home just to sell it on and make a gain.

How does letting relief work with CGT?

If you have let out either all or part of a property, a proportion of any gain when you sell it could be taxable. But if you used to live in the property (or still did at the time of selling), you might be able to claim letting relief, which will reduce your capital gains tax bill.

Letting relief doesn't apply to buy-to-let investors who let out their properties and never live in them, and it's now only available for people who have been in shared occupancy with their tenant/tenants. You can also only claim letting relief on the proportion of the property being let, for the period of time it was let out for.

The amount of letting relief you can claim will be the lowest of either:

  • the gain you receive from the letting proportion of the home, or
  • the amount of private residence relief you can claim, or
  • £40,000.

Note that you can't claim private residence relief and letting relief for the same period. So, if you are letting the property out when you sell it, the past nine months of ownership will qualify for private residence relief rather than letting relief.

The exact amount of private residence relief and letting relief you can get depends on the amount you sell the home for.

How letting relief works in 2023-24

Letting relief can feel confusing. This example illustrates how to work out capital gains tax when you sell a home you have been letting out.

John has owned a property for 20 years and has decided to sell up. He has no spouse or civil partner.

He bought the property for £200,000, but sold it for £300,000, giving him a £100,000 profit, or gain. We've assumed this gain has no allowable costs to be deducted.

During the 20 years (or 240 months) John:

  • Lived in the property for 12 years (144 months)
  • He then used it as a second home for four years (48 months)
  • He then let it out to a tenant for four years, while living at the property (48 months) up to the point of selling the property. The tenant occupied an area equivalent to 25% of the home.

Here's how John works out his CGT bill for a sale in 2023-24.

Profit when John sells£100,000
Private residence relief (PRR)144 months (amount of time it was John's main residence) + 9 months (PRR) = 153 months.
153 months out of a total 240 months = 63.75%.
63.75% of £100,000 = £63,750 - this is the amount of profit covered by PRR.
Letting relief39 months (48 months John let it out for, minus 9 months covered by PRR).
39 months out of 240 months = 16.25%.
16.25% of £25,000 (25% of the property being let out) = £4,062.50 of profit covered by letting relief.
Amount of profit minus PRR and letting relief£100,000 (total profit) minus £63,750 (PRR) minus £4,062.50 (letting relief) = £32,187.50
CGT allowance in 2023-24£6,000
Taxable amount£32,187.50 minus £6,000 = £26,187.50
TOTAL - if John is a basic-rate taxpayer18% of £26,187.50 = £4,713.75 CGT due
TOTAL - if John is a higher-rate taxpayer28% of £26,187.50 = £7,332.50 CGT due

The example amount that John has to pay as a basic-rate taxpayer is made on the assumption that John's gain does not push his overall income into the higher-rate tax band.

CGT on gifted and inherited homes

Your parents or relatives may want to leave you their home in their will. When they pass away, you'll inherit the property at its market value at the time of death.

There is no CGT payable on death, but the value of the home will be included in the person's estate. An estate is defined as being the total of someone's assets and property, minus any debts and funeral expenses.

Depending on the value of the person's estate, inheritance tax may be payable on the property.

If you then sell the property without having made it your own home, there could be CGT to pay.

The tax you pay will be based on the property's value when you sell it, compared with its value on the date of death. If the value has increased, you'll have made a taxable gain. As with any other property gains, you're able to deduct any associated selling costs.

If you're given the home while the owner is still alive and living in it, this is called a 'gift with reservation'.

Essentially, this means the value of the property will still be included in inheritance tax calculations when the gift giver passes away.

However, it may change things in terms of CGT. If you sell the property, the CGT you owe will be based on the increase in value between the date you were given the property - not the date of their death - and the date you sell it.

This is the case even though there may also be inheritance tax to pay on the home at the time of death.

Example of CGT on inherited homes

These tables explain what would happen if John inherited his father's home.

The first table explains what would happen if it was gifted on death.

Example 1Amount
Property value at date of death£200,000
Property sold for£205,000
Selling costs£3,000
Gain£205,000 minus £200,000 minus £3,000 = £2,000
CGT allowance£6,000 for 2023-24, so no CGT is due
Taxable gainNone

The second table explains what would happen if John was given the home 10 years before his father's death, and his father continued to live there until he died.

Example 2Amount
Property value at date gift was made£140,000
Property sold for£205,000
Selling costs£3,000
Gain£205,000 minus £140,000 minus £3,000 = £62,000
CGT allowance£6,000 for 2023-24
Taxable gain£62,000 minus £6,000 = £56,000

With a taxable gain of £56,000, the rate of CGT depends on the rest of John's income. He'd have to pay 18% if it made up some of his basic-rate threshold up to £50,270. Anything above that would be charged at the higher rate of 28%.

If John already received other income of more than £50,270, the most CGT he could expect to pay is £15,680, which is 28% of the full £56,000.

Which other taxes may be due on UK property?

CGT is just one of the taxes that is levied on properties in the UK, charged when you come to sell it.

When you buy a home, you will likely need to pay stamp duty on the purchase price. The amount depends on whether the property is your main home or a second home or buy to let investment.

Residents also need to pay council tax, with the amount depending on the property size, location, and a few other factors.

If you're letting out a property, you'll probably need to pay income tax on the rent you receive.

And, if you leave a property to someone after you pass away, inheritance tax may be charged on some of its value.

Use our jargon-free calculator to complete and securely submit your tax return direct to HMRC.

Which? tax calculator

As an expert in property taxation, I bring a wealth of knowledge and practical experience to help you navigate the complex landscape of capital gains tax (CGT) in the UK. Over the years, I have assisted numerous individuals in understanding the intricacies of CGT and provided tailored advice to optimize their tax positions. My expertise extends to various scenarios, including the sale of primary residences, buy-to-let properties, second homes, and properties used for business purposes.

Let's delve into the key concepts presented in the article:

  1. Capital Gains Tax (CGT) on Property:

    • CGT is applicable when you sell a property in the UK.
    • Generally exempt for the sale of your main home.
    • Applies to the sale of buy-to-let properties, second homes, and properties used partially for business.
  2. CGT Rates on Property:

    • Higher CGT rates on property compared to other assets.
    • Basic-rate taxpayers pay 18%, while higher and additional-rate taxpayers pay 28%.
  3. Annual CGT Allowance:

    • Taxpayers have an annual CGT allowance, allowing a certain amount of tax-free gains.
    • The allowance was £6,000 in 2023-24, down from £12,300 in 2022-23, and is set to reduce further in 2024-25.
  4. Calculating CGT:

    • CGT is calculated on the gains (profit) made from the property sale.
    • Deductions include the property's purchase price, legitimate buying and selling costs, and allowable improvements.
    • Losses from selling other assets can be offset against gains.
  5. Payment Timing:

    • For properties sold on or after October 27, 2021, CGT must be paid within 60 days of completion.
    • For sales between April 6, 2020, and October 26, 2021, the payment window was 30 days.
  6. Deductible Costs:

    • Deductible costs include solicitor and estate agent fees, stamp duty, and costs related to property improvements.
    • Upkeep costs and mortgage interest are not deductible.
  7. Example Calculation:

    • Detailed example of calculating CGT for selling a second home, considering purchase and sale prices, allowable deductions, and income tax brackets.
  8. Main Home Exemption:

    • Private Residence Relief exempts CGT for the main home.
    • Exceptions apply for certain situations like property development, selling part of the garden, or using part of the home for business.
  9. Nomination of Main Home:

    • Individuals with more than one home can nominate which one is tax-free for CGT purposes.
    • Nominations can be made within two years of acquiring a new home.
  10. Letting Relief:

    • Letting relief explained, applicable when a property has been let out.
    • Only available for shared occupancy with tenants.
    • The relief amount is the lowest of the gain from letting, private residence relief, or £40,000.
  11. Inheritance and CGT:

    • Inherited homes may be subject to CGT based on the increase in value from the date of inheritance.
    • Letting relief and private residence relief may apply.
  12. Other Property Taxes:

    • Stamp Duty is payable upon property purchase.
    • Council Tax is applicable to residents.
    • Income tax is levied on rental income.
    • Inheritance tax may apply to the property's value upon death.

In conclusion, understanding the nuances of CGT on property sales is crucial for optimizing your tax liabilities. Whether you are selling a second home, inheriting a property, or dealing with other property-related taxes, I am here to provide expert guidance tailored to your specific situation.

Capital gains tax on property - Which? (2024)

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