Capital Gains Tax applies to the profit you make when selling a residential property. This profit is the “gain“. So, if your property increases in value between purchase and sale, you may need to pay tax on that increase.
You usually pay Capital Gains Tax when you sell:
- A second home or holiday home
- A buy-to-let or rental property
- An inherited property that increased in value
- A property that was not your main residence for the full ownership period
However, not every sale leads to a tax bill. In some cases, reliefs and allowances can reduce or remove the tax completely.
Calculating Your Gain When Selling a Residential Property
To calculate your gain, follow these steps:
- Start with the sale price of the property
- Deduct the original purchase price (or probate value for inherited properties)
- Deduct allowable costs and expenses
Allowable costs and expenses include:
- Solicitor and legal fees for buying and selling
- Estate agent fees
- Stamp Duty Land Tax paid on purchase
- Costs of improvements (such as extensions or structural upgrades)
However, routine maintenance costs, such as decorating or repairs, do not qualify.
Keeping accurate records of these costs will help you reduce your final tax bull and support your calculations, if required.
When You Do Not Pay Capital Gains Tax
In many situations, you will not pay Capital Gains Tax, as Private Residence Relief often removes the tax entirely.
You may not pay Capital Gains Tax if:
- The property was your only or main home throughout ownership
- Your gain falls within the £3,000 Annual Exempt Amount
- You made a loss on the sale
- Private Residence Relief covers the full gain
Additionally, Private Residence Relief covers the final 9 months of ownership. This rule applies even if you moved out before selling.
The Annual Exempt Amount
Each individual receives a tax-free Capital Gains Tax allowance of £3,000 each year.
Couples can combine allowances if they jointly own a property. This means a jointly owned property could benefit from a £6,000 total exemption.
When You Do Pay Capital Gains Tax
On the other hand, Capital Gains Tax applies when Private Residence Relief does not fully cover the gain.
You may need to pay Capital Gains Tax if you sell:
- A second home
- A holiday property
- A buy-to-let property
- A rental property
- A property you inherited and later sold
- A home you lived in for only part of the ownership period
In these situations, you only pay tax on the profit, not the full sale price.
Capital Gains Tax Rates
Your Capital Gains Tax rate depends on your total taxable income.
| Tax Band | Income Range | Capital Gains Tax Rate |
|---|---|---|
| Basic Rate | £12,571 to £50,270 | 18% |
| Higher Rate | £50,271 to £125,140 | 24% |
| Additional Rate | Over £125,140 | 24% |
You must combine your income and gain to determine your correct tax band. Therefore, the timing of your sale can influence how much tax you pay.
For example: Selling in a lower-income year may result in a lower rate.
The 60 Day Rule When Selling a Residential Property
You must report and pay Capital Gains Tax within 60 days of completion. This deadline applies to most UK residential property sales.
To report your gain:
- Create a Capital Gains Tax on UK Property Account Online
- Gather all property details and calculations
- Submit your Capital Gains Tax return
- Pay the tax within the same 60-day period
Even if you complete a Self Assessment tax return, you must still submit this separately. Afterwards, you must include the sale in your annual tax return, if required.
Before you report your gain, you will need:
- The property address and postcode
- Dates of purchase and sale
- Purchase and sale values
- Details of costs and improvements
- Information on any reliefs claimed
Accurate records ensure your calculations remain correct and reduce the risk of errors.
Penalties for Late Reporting
Missing the 60-day deadline can lead to penalties and interest charges.
- £100 fixed penalty for late filing
- Additional penalties after 6 and 12 months
- Interest charged on unpaid tax
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.