Capital Gains Tax and Property: The Rates Have Changed

If you sell a property that isn't your main home, you'll almost certainly owe capital gains tax on the profit. The rates changed on 30 October 2024, and further changes to Business Asset Disposal Relief (BADR) took effect on 6 April 2025. Understanding the current rules is essential before you exchange contracts.

This guide covers capital gains tax and property for UK business owners: limited company directors, sole traders, partnerships, and contractors. We'll work through residential property, commercial property, the reliefs available, and the deadlines you cannot afford to miss.

Residential Property CGT Rates for 2025/26

Residential property gains are taxed at higher rates than other assets. The current rates from 30 October 2024 are:

  • Basic rate taxpayers: 18%
  • Higher and additional rate taxpayers: 24%

These rates apply to any gain on residential property that isn't your main residence. That includes buy-to-let properties, second homes, inherited properties you sell, and properties you've lived in but later let out.

The previous 18% and 28% rates applied before 30 October 2024. If you sold a property before that date, you use the old rates. For sales on or after 30 October 2024, the new rates apply.

What Counts as Residential Property for CGT?

HMRC defines residential property as a building that is used or suitable for use as a dwelling. That includes houses, flats, maisonettes, and apartments. It also includes land that forms part of the garden or grounds, up to the permitted area (typically 0.5 hectares).

Mixed-use properties (for example, a shop with a flat above) are treated as residential for the part of the gain that relates to the dwelling. You'll need to apportion the gain between the residential and commercial elements.

Commercial Property CGT Rates for 2025/26

Commercial property gains are taxed at the standard CGT rates for other assets. These are:

  • Basic rate taxpayers: 10% (on gains within the basic rate band)
  • Higher and additional rate taxpayers: 20% (on gains above the basic rate band)

These rates apply to commercial premises like offices, warehouses, shops, factories, and agricultural land. If you sell a commercial property that you've owned personally (not through a company), these rates apply.

What If You Sell Through a Limited Company?

Limited companies don't pay capital gains tax on property sales. Instead, they pay corporation tax on the gain at the company's corporation tax rate. For 2025/26, that's 19% for profits up to £50,000, 25% for profits above £250,000, with marginal relief in between.

Companies don't get the CGT annual exempt amount. They also don't qualify for BADR on the sale of property (BADR applies to shares and business assets, not property held directly by the company).

If you extract the proceeds from the company, you'll face further tax: dividends (taxed at 8.75%, 33.75%, or 39.35%) or a capital distribution on liquidation (potentially qualifying for BADR on the shares). The overall tax rate can be higher than selling personally, so structure matters.

Business Asset Disposal Relief and Property

BADR (formerly Entrepreneurs' Relief) gives a lower CGT rate on qualifying gains. From 6 April 2025, the BADR rate is 14%. It will rise to 18% from 6 April 2026. The lifetime limit remains £1 million.

BADR can apply to property in specific circumstances:

  • Sale of a business as a going concern: If you sell your entire business, including the premises, the property gain can qualify for BADR if you've owned the business for at least 2 years.
  • Sale of shares in a trading company: If you own at least 5% of the shares and voting rights in a trading company, and you've been an employee or officer for 2 years, the gain on selling those shares can qualify. The company must own the property.
  • Sale of an asset used in your business after ceasing trade: If you stop trading and sell the property within 3 years, it can still qualify for BADR.

BADR does not apply to buy-to-let properties or investment properties held personally. It only applies to assets used in a qualifying trading business.

As ICAEW qualified accountants, we regularly see business owners miss BADR on property because they didn't plan the sale structure. If you're considering selling a property that's integral to your business, talk to us before you agree a price.

The Annual Exempt Amount for 2025/26

Every individual has an annual CGT exempt amount. For 2025/26, it's £3,000. This is the profit you can realise before any tax is due. It's use-it-or-lose-it: you can't carry forward unused allowance.

If you're selling a property jointly with a spouse or civil partner, you each get the £3,000 allowance. That's £6,000 of tax-free gain on a jointly owned property.

The annual exempt amount has been cut significantly. In 2022/23 it was £12,300. In 2023/24 it fell to £6,000. Now it's £3,000. Most property sales will exceed this, so don't assume you're within the allowance.

Principal Private Residence Relief: Your Main Home

If you sell your main home, Principal Private Residence Relief (PPR) means you pay no CGT on the gain. This is the most valuable property relief available.

PPR covers the entire period you lived in the property as your main residence, plus the final 9 months of ownership regardless of where you were living (this used to be 18 months, but was reduced to 9 months from April 2020).

If you let out part of your home, or used part exclusively for business, PPR may be restricted. Lettings Relief was also restricted from April 2020. It now only applies if you lived in the property at the same time as the tenant.

For periods where the property wasn't your main residence, the gain is apportioned. For example, if you owned a property for 10 years and lived in it for 6, roughly 60% of the gain is exempt (assuming no other reliefs apply).

60-Day Reporting for UK Residential Property

If you sell a UK residential property and owe CGT, you must report and pay the tax within 60 days of completion. This is a hard deadline. Miss it and HMRC charges interest and penalties.

The 60-day return is filed using the CGT on UK property account service through your HMRC online account. You need to estimate the gain and pay the tax within the same window. A final calculation is then included in your Self Assessment tax return (SA100) for the year.

This applies to UK residents selling UK residential property. Non-UK residents have different rules and a 60-day reporting requirement that covers both residential and commercial property.

If you sell a commercial property as a UK resident, there is no 60-day reporting requirement. You report the gain on your Self Assessment return (SA100) by 31 January after the tax year end.

Practical Example: Selling a Buy-to-Let Property

Let's work through a real scenario. Sarah owns a buy-to-let flat in Birmingham's Jewellery Quarter. She bought it for £180,000 in 2017. She sells it in June 2025 for £265,000. The costs of sale (estate agent, legal fees) are £6,000. She has never lived in the property.

Her gain is: £265,000 minus £180,000 minus £6,000 = £79,000.

Sarah is a higher rate taxpayer. Her CGT rate on residential property is 24%. Her tax is: £79,000 minus £3,000 (annual exempt amount) = £76,000 taxable gain. £76,000 x 24% = £18,240.

She must report the sale and pay the £18,240 within 60 days of completion. She cannot wait until her Self Assessment return in January 2026.

If Sarah had sold a commercial property (say a shop she owned personally and let to a tenant), the rate would be 20% instead of 24%, and there would be no 60-day reporting requirement.

Reliefs and Allowances for Property Gains

Several reliefs can reduce your CGT bill on property. The main ones are:

  • Principal Private Residence Relief: Full exemption for your main home, plus the final 9 months.
  • Lettings Relief: Up to £40,000 per owner if you lived in the property at the same time as the tenant. Very restricted since April 2020.
  • Business Asset Disposal Relief: 14% rate (2025/26) on qualifying business property, up to £1 million lifetime gains.
  • Gift Hold-Over Relief: Defers the gain if you give away a business asset or certain shares. The recipient inherits your base cost.
  • Rollover Relief: Defers the gain if you sell a business asset and reinvest the proceeds in a new qualifying asset within 3 years.
  • Incorporation Relief: Defers the gain if you transfer a business (including property) into a limited company in exchange for shares.

Each relief has specific conditions. Rollover Relief, for example, requires the old and new assets to be used in your trade. It doesn't apply to investment property.

Property Held in a Partnership

Partnerships hold property in a specific way for CGT purposes. Each partner owns a share of the partnership assets. When the partnership sells a property, each partner reports their share of the gain on their personal Self Assessment return (SA800 for the partnership return, then SA100 for the individual).

Each partner uses their own annual exempt amount (£3,000) and pays tax at their own marginal rate. The 60-day reporting rule for residential property applies to each partner individually if their share of the gain exceeds the exempt amount.

Partnership property can be complex, especially when partners join or leave. If the property has been revalued in the partnership accounts, the base cost for CGT may differ from the book value. Keep detailed records of capital accounts and any property revaluations.

Property and Capital Gains Tax: Common Mistakes

We see the same errors repeatedly. Here are the ones to avoid:

  • Missing the 60-day deadline: The most common and most expensive mistake. HMRC's penalty regime starts immediately.
  • Forgetting costs: You can deduct acquisition costs (stamp duty, legal fees, survey costs) and disposal costs (estate agent, legal fees). Keep every invoice.
  • Ignoring enhancement expenditure: Capital improvements (new roof, extension, rewiring) add to your base cost. Repairs and maintenance don't. The distinction matters.
  • Assuming PPR covers the whole gain: If you've lived in the property but also let it out, you need to apportion the gain. HMRC will check.
  • Not using both spouses' allowances: If you own property jointly, ensure the gain is split correctly to use both annual exempt amounts and lower tax bands.
  • Thinking the company rate is always better: Corporation tax at 19% or 25% looks lower than personal CGT rates, but extracting the proceeds triggers further tax. Model both scenarios before deciding.

Planning Ahead: What to Do Before You Sell

If you're considering selling a property, take these steps before you market it:

  1. Calculate your estimated gain. Work out the base cost, allowable costs, and likely sale price. Get a rough figure.
  2. Check your annual exempt amount. If you haven't used it yet this year, you have £3,000 of tax-free gain.
  3. Review available reliefs. Does PPR apply? BADR? Rollover relief? Each has time limits.
  4. Consider timing. If you're close to a tax year end, delaying completion by a few days could push the gain into the next year, giving you another annual exempt amount.
  5. Think about the buyer. Selling to a connected person (spouse, family member, your own company) triggers special rules. Market value is deemed, not the actual sale price.
  6. Talk to an accountant. A conversation before you exchange contracts can save thousands. After completion, your options are limited.

Our ICAEW qualified team at Holloway Davies works with business owners across the UK on property CGT planning. Whether you're a sole trader selling your workshop in Sheffield's Kelham Island or a limited company director selling a portfolio of buy-to-lets in Manchester's Northern Quarter, the rules apply the same way. The strategy depends on your circumstances.

If your property sale is imminent, get in touch through our contact page. We'll help you calculate the tax, file the 60-day return, and claim every relief you're entitled to.