Capital gains tax on property is a tax levied by HMRC on the profit made when you sell or dispose of a property that has increased in value. In the UK, this tax applies primarily to buy-to-let investments, second homes, and inherited estates.
For the 2026/27 tax year, individuals benefit from a £3,000 annual exempt amount, while gains above this threshold are taxed at 18% or 24%, depending on your income tax band.
What is capital gains tax on property?
Capital gains tax (CGT) is the tax you pay on the gain, the difference between what you paid for a property and what you sold it for, rather than the total amount of money you receive.
In the UK, it is a self-reported tax that must be settled within a strict 60-day window following the completion of a residential property sale.
The fundamental distinction between profit and revenue
It is a common misconception that HMRC taxes the entire sale price. In reality, the gain is the net profit after accounting for the initial purchase price and specific acquisition costs.
For example, if you purchased a flat for £200,000 and sold it for £280,000, your gross gain is £80,000.
However, the taxable element is often significantly lower once you apply your annual allowance and deduct allowable expenses like Stamp Duty and legal fees.
How much capital gains tax on property do I have to pay?
The amount of capital gains tax on property you owe depends entirely on your total taxable income and the size of your profit.
For the 2026/27 tax year, the rates for residential property are bifurcated based on whether you are a basic rate or higher rate taxpayer.
Since your total annual income dictates which CGT bracket you fall into, maintaining an accurate HMRC record is essential.
It is quite common for investors to find their personal circumstances shifting, necessitating a review of how to change tax code settings to prevent underpaying or overpaying tax on their wider earnings.
- Basic Rate Taxpayers: You pay 18% on residential property gains that fall within the basic income tax band.
- Higher and Additional Rate Taxpayers: You pay 24% on all residential property gains.
- Non-Residential Property: Gains on commercial land or other assets are typically taxed at lower rates of 10% and 20%.
| Taxpayer Category | Residential Property Rate | Non-Residential/Other Assets |
| Basic Rate | 18% | 10% |
| Higher/Additional Rate | 24% | 20% |
| Trustees and Executors | 24% | 20% |
| Limited Companies | Corporation Tax (Variable) | Corporation Tax (Variable) |
How to calculate your taxable gain in 8 steps
Calculating your liability correctly is the only way to ensure you don’t overpay HMRC. HMRC typically requires you to follow this specific sequence to arrive at your final taxable figure:
- Identify the final sale price (Disposal Value).
- Deduct the original purchase price (Acquisition Value).
- Subtract Allowable Costs such as Stamp Duty Land Tax paid at purchase.
- Deduct legal fees and estate agent commissions from both purchase and sale.
- Subtract costs of Capital Improvements (e.g., a new extension or loft conversion).
- Deduct your 2026/27 capital gains tax allowance of £3,000.
- Apply any Capital Losses carried forward from previous tax years.
- Multiply the remaining figure by your applicable tax rate (18% or 24%).
What is the 2026 capital gains tax allowance?
The CGT allowance, officially known as the Annual Exempt Amount (AEA), is currently £3,000 for individuals and personal representatives. This is a use it or lose it tax-free threshold that cannot be carried over to the next tax year.
While the £3,000 allowance is a personal entitlement, the rules change significantly for assets held within a legal wrapper.
For instance, navigating the biggest mistake parents make when setting up a trust fund in the UK, often involves overlooking the fact that trusts generally receive a much lower annual exemption than individual owners.
If you own a property jointly with a spouse or civil partner, you can combine your allowances to shield £6,000 of profit from tax.
Understanding allowable costs and renovations
In practice, I often see taxpayers fail to claim capital improvements because they confuse them with general maintenance.
To be deductible, the work must add value to the property rather than just repairing it.
- Deductible: Adding a conservatory, installing a new central heating system where none existed, or structural underpinning.
- Non-Deductible: Painting and decorating, fixing a leaky roof, or replacing a boiler like-for-like.
How to avoid capital gains tax on property legally
Though the term tax avoidance is often misunderstood, HMRC provides several statutory reliefs designed to prevent homeowners from being unfairly penalised.
The most significant is Private Residence Relief (PRR).
- Principal Private Residence (PPR): You generally pay no tax when selling your main home. To qualify, the property must have been your only or main residence throughout your period of ownership.
- The 9-Month Rule: If you move out of your home before selling it, the final 9 months of ownership are usually tax-free, regardless of whether you rented it out during that time.
- Inter-Spousal Transfers: Transferring a share of the property to a spouse before a sale is a no-gain/no-loss event. This allows both parties to use their £3,000 capital gains allowance.
- Capital Losses: If you sold another asset (like shares or a different property) at a loss, you can offset that loss against your gains to reduce the total bill.
How long do I have to live in a property to avoid capital gains?
There is no fixed statutory period (like two years) that automatically exempts a property. HMRC looks at the quality of occupation.
If you move into a house for three months solely to sell it tax-free, HMRC may classify it as a trading venture rather than a residence.
Generally, a year of occupation with supporting evidence, such as being on the electoral roll and having utility bills in your name, is considered strong evidence of a main residence.
Special considerations for limited companies and business assets
If you hold property within a capital gains tax on a property limited company structure, you do not pay CGT.
Instead, the company pays Corporation Tax on the profits. As of 2026, the main rate of Corporation Tax is 25% (for profits over £250,000), which can actually be higher than the 24% individual CGT rate.
Business Asset Disposal Relief (BADR)
For those selling business premises or certain holiday lets, BADR may apply. From April 2026, the BADR rate has increased to 18%.
This relief is highly complex and usually requires the property to have been an integral part of a trading business for at least two years before the sale.
| Feature | Individual Ownership | Limited Company Ownership |
| Tax Type | Capital Gains Tax | Corporation Tax |
| Top Rate | 24% | 25% |
| Annual Allowance | £3,000 | None |
| Reporting | 60 Days via CGT Account | Within 12 Months via Company Tax Return |
Deadlines and penalties: The 60-day reporting rule
A common pattern among accidental landlords is missing the 60-day deadline because they assume they can just wait for their annual Self Assessment return. This is a costly mistake.
For any UK residential property sale resulting in a tax liability, you must report and pay the tax to HMRC within 60 days of completion.
If you haven’t interacted with HMRC recently, you must first secure a Unique Taxpayer Reference.
Most owners begin by researching how do I get a UTR number well in advance of their sale, as this 10-digit code is the key required to open a Capital Gains Tax on Property Account.
- Late Filing Penalty: An immediate £100 fine if the return is one day late.
- 6-Month Delay: An additional penalty of 5% of the tax due or £300 (whichever is greater).
- Interest Charges: HMRC charges interest on any unpaid tax starting from the 61st day.
FAQ about capital gains tax on property
Do I pay capital gains tax when selling my main home?
Generally, no. Under Private Residence Relief, you are exempt from CGT on your primary home. However, tax may apply if you have used part of it exclusively for business or if the grounds exceed 0.5 hectares.
How much is the capital gains tax allowance for 2026/27?
The annual exempt amount is currently £3,000 per person. This means the first £3,000 of your total gains in the tax year are completely tax-free and do not need to be reported if the sale value is below certain limits.
Can I avoid the 24% higher rate of CGT?
If your income is close to the basic rate threshold, you can sometimes reduce your CGT rate to 18% by making pension contributions or Gift Aid donations.
This is particularly relevant following a significant one-off change in your finances.
For example, calculating how much tax will i pay on 60,000 redundancy is a vital step before selling an asset, as a large settlement could inadvertently push your property profit from the 18% basic rate into the 24% higher-rate bracket.
These contributions effectively widen your basic rate tax band, potentially saving thousands in property tax.
Is there a capital gains tax on property calculator provided by HMRC?
Rather than a simple standalone tool, HMRC offers an integrated ‘Report and Pay’ service. This portal acts as a live calculator, requiring your acquisition and disposal figures to generate an accurate liability in real-time.
How do I report CGT if I am a non-UK resident?
Non-residents must report all sales of UK property to HMRC within 60 days, even if there is no tax to pay or if they have made a loss. The rules for calculating the gain differ depending on when the property was acquired.
Can I offset the cost of a new kitchen against CGT?
You can only offset the cost if the new kitchen is a substantial capital improvement (e.g., extending the kitchen). Replacing old units with a similar modern equivalent is usually viewed as repairs and maintenance, which are not deductible.
What happens if I inherit a property?
When you inherit property, its value is stepped up to the market value at the date of the previous owner’s death. You only pay CGT on the increase in value from the date you inherited it to the date you sell it.
Summary and Next Steps
Navigating CGT rates requires proactive planning before the Sold sign goes up. To protect your investment, ensure you have a digital folder containing your original purchase completion statement, receipts for major structural works, and records of legal fees.
If you are selling a second property in 2026, your first priority is setting up an HMRC Capital Gains Tax on Property Account immediately after exchange to ensure you meet the 60-day filing window.
