Are you thinking of selling a Property? Whether it’s a second home, a Rental flat or a Property you’ve inherited, Capital Gains Tax (CGT) might be waiting around the corner.
You can avoid surprise bills by understanding when CGT applies, how much you might owe and what reliefs are available. You might even be able to reduce your tax burden.
Let’s break it down.
What Is Capital Gains Tax?
Capital Gains Tax is a tax on the profit (gain) you make when you sell or “dispose of” an asset that’s increased in value. It’s the gain that’s taxed — not the total amount of the sale.
In the case of property, CGT typically applies to:
- Second homes
- Buy-to-let or Rental properties
- Properties you’ve inherited and later sell
Your main residence is usually exempt, thanks to something called Private Residence Relief — but more of that later.
Capital Gains Tax Allowance 2024/25
For the current tax year, everyone gets a £3,000 annual CGT allowance. This means you only pay Tax on gains above that amount.
If you jointly own a property (e.g. with a spouse), you each get your own allowance — so you may potentially have £6,000 in total.
Capital Gains Tax Rates on Property
The tax rate you pay depends on your income tax band:
- Basic rate taxpayers pay 18% on property gains
- Higher or additional rate taxpayers pay 28%
Don’t forget that you can deduct allowable costs, like Solicitor fees, Estate agent fees, and improvement costs, to reduce the gain. However, general maintenance costs aren’t deductible.
Main Residence vs Rental or Investment Property
Your main residence (or, more simply, your home) is usually exempt from CGT under Private Residence Relief, as long as:
- You’ve lived there as your main home throughout your ownership
- It wasn’t rented out — or, at most, only partially for a short time
- It wasn’t used for business purposes
Rental properties, on the other hand, don’t qualify for this relief and are subject to CGT when sold.
Reporting & Payment Deadlines
If you sell a UK residential property and CGT is due, you must:
- Report the gain to HMRC within 60 days of completion
- Pay any tax owed within that same 60-day window
Missing the deadline can result in penalties and interest charges.
Final Tips for Minimising Capital Gains Tax on Property
- Plan ahead if you’re intending to sell a property — especially if it’s not your main home
- Keep records of all improvement costs and expenses
- Use your annual CGT allowance wisely
- Consider timing your sale over more than one tax year, if possible, to use multiple allowances
Do you need help with calculating your gain or reporting to HMRC? Contact us at Grace Certified Accountants on info@gracecertifiedaccountants.co.uk for expert help.