Capital Gains Tax on UK property: A guide for residents and non-residents
Thinking of selling your UK property? You might need to pay Capital Gains Tax on any profit you make. Certain exemptions and deductions can lower your tax bill. Here’s what you need to know.
Scott Brown ● Mar 6, 2025
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What is Capital Gains Tax on property?
Capital Gains Tax (CGT) is based on the gain or profit you make when selling your property. So, if you bought a house for £150,000 and sold it for £250,000 you would be taxed on the £100,000 profit, minus any allowable expenses.
CGT generally only applies to second homes and rental and investment properties, not when selling your main home. However, if you lease out a section of your main home or it is partly used as a business premises, you may still have to pay CGT.
If you make a loss on the sale, this can be offset against future capital gains. Losses can be carried forward indefinitely to be set against future gains. You have up to four years to report losses to HMRC if you weren’t required to file a Self-Assessment return for that year.
How to report and pay CGT
For UK property sales completed on or after 27 October 2021, you must report and pay CGT within 60 days following completion of conveyance.
To do this:
- Set up a CGT account through your Government Gateway account. If you’re not able to set up an online account (if you don’t have a UK passport, for example), a paper return will need to be posted to HMRC. This can take considerably longer so clients are encouraged to get in touch with us as early as possible. We will make sure you don’t miss any deadlines to avoid penalties.
- Report the gain online and make the payment yourself or authorise your accountant to do so.
- Avoid penalties by meeting the 60-day deadline – late payments can result in fines and interest on unpaid tax.
What is Private Residence Relief?
If the property you are selling was your main home for the entire time you owned it, you don’t have to pay CGT. This is known as Private Residence Relief (PRR) or Principal Private Residence Relief (PPR).
However, if you rented out the property for a period, used part of the home for business purposes or did not live there for the whole time then you may only get partial relief, and part of the gain may be taxable.
Even if you’ve moved out, the final nine months of ownership automatically qualify for relief. However, if you bought the home purely to sell it for a profit, PRR does not apply.
What can I deduct from my taxable gain?
You can reduce your taxable gain by deducting certain costs, including:
- Legal and estate agent fees from buying and selling the property
- Stamp Duty paid at the time of purchase
- Capital improvements that add value, such as a new bathroom, extensions or a loft conversion
However, general maintenance costs, like painting or minor repairs, cannot be deducted.
Who needs to pay CGT on UK property sales?
1. UK Tax Residents
If you're a UK tax resident and sell a property that is not your main home, CGT will likely apply.
This includes:
- Buy-to-let properties
- Second homes
- Inherited properties (if not used as a main residence)
2. Non-Residents
If you live outside the UK but own property there, you may still owe CGT when selling. Since 6 April 2015, non-residents must pay CGT on gains from UK residential property.
For properties owned before April 2015, you can choose to calculate your gain using the market value as of 5 April 2015, rather than the original purchase price.
Even if no tax is due, non-residents must still report the sale to HMRC within 60 days to avoid penalties.
CGT rates and allowances (2024/25)
The amount of CGT you pay depends on your total taxable income and whether you are a basic-rate or higher-rate taxpayer. A basic rate is when your total income and gains are below £50,270 and a higher rate is for those with a total income and gains above £50,270.
From 6 April 2024, CGT is 18% for basic rate taxpayers and 24% for higher rate taxpayers.
All taxpayers have a tax-free allowance of £3,000 for the 2024/25 tax year, down from £6,000 in 2023-24. This means you will only pay CGT on gains above this amount. The £3,000 exemption is expected to remain at the same level for the 2025/26 tax year. You need to “use it or lose it’” as it cannot be carried forward to future years.
Couples who jointly own assets can combine this allowance, potentially allowing a gain of £6,000 without paying any tax.
How to minimise CGT on inherited property
You don’t pay CGT when inheriting a property, but if you sell it later at a higher value, CGT applies on the gain.
To avoid or reduce this, you can sell the property immediately before it appreciates or move in and make it your main home, qualifying for Private Residence Relief.
If you rent out the property, CGT will apply when selling, based on its increase in value since inheritance.
If someone gifts a property to someone other than their spouse, the disposal will be subject to CGT based on the market value at the time that the property was gifted.
It will also be considered a potentially exempt transfer (PET) which means that the gift could fall outside the death estate if the giftor survives seven years.
There are, however, special provisions referred to as “gift with reservation of benefit” or GWROB. This is to prevent ageing parents gifting their main home to their child, therefore benefiting from no CGT due to the PRR, but the parent continues to live in the property. Gifts that fall within the GWROB could have income tax and Inheritance Tax implications.
Capital Gains Tax can seem complex, but with the right advice and strategic planning, you can reduce your tax burden and avoid costly mistakes.