Selling a property that is not your main home usually triggers a capital gains tax charge. The rate you pay depends on your total income and the type of property. For residential property gains in the 2025/26 tax year, the rates are 18% for basic rate taxpayers and 24% for higher rate taxpayers. These rates apply to gains above your annual exempt amount, which is £3,000 for individuals in 2025/26.

If you are a landlord selling a buy-to-let flat in Birmingham, a sole trader selling a commercial unit in Leeds, or a director selling a second home in Cornwall, the calculation follows the same structure. You take the sale proceeds, deduct the original cost and any allowable expenses, then apply the tax rate to the net gain. The detail is in what counts as an allowable cost and which reliefs you can claim.

This article covers the 2025/26 rates, the calculation steps, the main reliefs including Private Residence Relief and Business Asset Disposal Relief, and the filing requirements. We are ICAEW qualified accountants and work with UK business owners every day on property disposals. The guidance here is general. Your specific situation may need a tailored review.

What Counts as a Chargeable Gain on Property?

Capital gains tax on property applies when you sell or dispose of an asset and make a profit. For most business owners, the relevant assets are:

  • Buy-to-let residential properties
  • Second homes and holiday lets
  • Commercial property used by your business (workshops, offices, retail units)
  • Land held as an investment
  • Property inherited and later sold

Your main home is normally exempt under Private Residence Relief. That means no capital gains tax on property that has been your only or main residence throughout your ownership period. There are exceptions if you let part of it out, used part exclusively for business, or owned it jointly with someone who did not live there.

The gain is the difference between what you paid for the property (plus allowable costs) and what you sold it for (minus allowable costs). Allowable costs include:

  • The original purchase price
  • Stamp duty and legal fees on purchase
  • Costs of improvements that add value (not repairs or maintenance)
  • Estate agent fees and legal fees on sale

You cannot deduct mortgage interest, running costs like insurance, or general upkeep. Those are revenue expenses dealt with through your income tax return, not the capital gains calculation.

Capital Gains Tax on Property Rates for 2025/26

The rates changed from 30 October 2024. For disposals before that date, residential property gains were taxed at 18% (basic rate) and 28% (higher rate). From that date, the higher rate dropped to 24%. The basic rate stayed at 18%.

For 2025/26, the rates are:

  • Residential property: 18% basic rate, 24% higher rate
  • Non-residential property (commercial, land): 10% basic rate, 20% higher rate (these rates apply where the gain is not covered by Business Asset Disposal Relief)

Your tax rate depends on your total taxable income for the year. If your income is below the basic rate band (£50,270 for 2025/26), the part of the gain that falls within the remaining basic rate band is taxed at the lower rate. The rest is taxed at the higher rate.

Example: Sarah earns a salary of £35,000 from her limited company consultancy in Shoreditch. She sells a buy-to-let flat in Manchester, making a gain of £40,000 after all costs. Her annual exempt amount is £3,000, leaving a chargeable gain of £37,000. Her basic rate band is £50,270. She has £15,270 of unused basic rate band (£50,270 minus £35,000). So £15,270 of the gain is taxed at 18% = £2,748.60. The remaining £21,730 is taxed at 24% = £5,215.20. Total CGT = £7,963.80.

The Annual Exempt Amount (Allowance)

Every individual has an annual exempt amount. For 2025/26, it is £3,000. This means the first £3,000 of gains in the tax year are tax-free. If your total gains across all assets are below £3,000, you do not need to report or pay anything.

Trusts have a lower exempt amount: £1,500 for most trusts in 2025/26.

You cannot carry forward unused allowance from previous years. Use it or lose it applies.

If you are married or in a civil partnership, you can transfer assets between you without triggering a gain. This allows you to use both allowances. A common strategy is to transfer a share of the property to the spouse with the lower income before sale, so more of the gain is taxed at the lower rate.

Private Residence Relief (Main Home Exemption)

If the property has been your main home at any point during your ownership, Private Residence Relief can reduce or eliminate the gain. The relief covers the period you lived there plus the final 9 months of ownership (the "deemed occupation" period).

If you let the property out, you may also qualify for Lettings Relief. This is capped at £40,000 per owner and applies if you shared occupation with a tenant. Lettings Relief was restricted from April 2020. It now only applies where the owner and tenant shared the property. It does not apply to a fully let buy-to-let where you never lived there.

If you used part of your home exclusively for business (a dedicated office, not just occasional working from the kitchen table), that part may not qualify for Private Residence Relief. A reasonable apportionment is needed.

Business Asset Disposal Relief (Formerly Entrepreneurs' Relief)

If you sell commercial property used by your trading business, you may qualify for Business Asset Disposal Relief (BADR). This relief applies to the first £1 million of lifetime gains on qualifying business assets.

For disposals from 6 April 2025, the BADR rate is 14%. From 6 April 2026, it rises to 18%. The old 10% rate applied to disposals before 6 April 2025.

To qualify for BADR on commercial property, the property must have been used in your trading business for at least 2 years before disposal. If you own the property personally and your company occupies it, you need to be an officer or employee of the company and hold at least 5% of the shares and voting rights.

BADR does not apply to residential property that is not used for a trade. A buy-to-let portfolio does not qualify.

How to Calculate Capital Gains Tax on Property: Step by Step

Here is the calculation in plain numbers, using a real scenario.

Scenario: Tom runs a plumbing business as a sole trader in Bristol. He bought a commercial unit in 2018 for £180,000, including stamp duty and legal fees. He sells it in June 2025 for £310,000. Estate agent fees are £6,000, legal fees on sale are £2,000. He has made improvements: a new roof costing £12,000 in 2020 and rewiring costing £8,000 in 2021. He has not lived in the property.

Step 1: Sale proceeds = £310,000
Step 2: Less selling costs = £6,000 + £2,000 = £8,000
Step 3: Net sale proceeds = £302,000
Step 4: Original cost = £180,000
Step 5: Improvement costs = £12,000 + £8,000 = £20,000
Step 6: Total allowable costs = £200,000
Step 7: Gain = £302,000 minus £200,000 = £102,000
Step 8: Less annual exempt amount (£3,000) = £99,000 chargeable gain

Tom's total income for the year is £45,000 (self-employed profits). His basic rate band is £50,270. He has £5,270 of unused basic rate band (£50,270 minus £45,000). So £5,270 of the gain is taxed at 10% (non-residential property, basic rate) = £527. The remaining £93,730 is taxed at 20% (higher rate, non-residential) = £18,746. Total CGT = £19,273.

If the property had been residential (a buy-to-let flat), the rates would be 18% and 24% instead, giving a higher total.

When Do You Need to Report and Pay?

For UK residential property disposals, you must report the gain and pay the tax within 60 days of completion. This applies even if you have not yet filed your self assessment return for the year. The 60-day reporting is done through HMRC's online service. You need to create a "UK property account" in your HMRC online services if you have not already.

For commercial property and land, the gain is reported through your self assessment return (SA100 and the capital gains pages SA108). The payment deadline is 31 January following the tax year of disposal. For a disposal in June 2025, the tax year is 2025/26, so payment is due by 31 January 2027.

If you are a partnership, the partnership reports the disposal on the partnership return (SA800), and each partner reports their share on their individual return.

Late filing penalties start at £100 for a late self assessment return. Late payment interest is charged at the Bank of England base rate plus 2.5%.

Reliefs That Reduce Capital Gains Tax on Property

Beyond Private Residence Relief and BADR, several other reliefs may apply:

  • Rollover Relief: If you sell a business asset and reinvest the proceeds in a new qualifying asset within 3 years, you can defer the gain. Common for sole traders and partnerships selling commercial property and buying new premises.
  • Gift Hold-Over Relief: If you give away a business asset (including property) to someone, you can elect to hold over the gain. The recipient inherits your base cost. This is useful for passing property to family members without an immediate tax charge.
  • Incorporation Relief: If you transfer your sole trader business (including property) into a limited company, you can defer the gain on the property. The company inherits your base cost. This is covered in our incorporation guide.
  • Principal Private Residence Relief: As covered above, for your main home. If you have a garden or grounds of up to 5,000 square metres (about 1.25 acres), that area is usually covered too.

Each relief has strict conditions. Missing a deadline or failing to meet the qualifying period means the relief is lost.

Property Owned Through a Limited Company

If you own property through a limited company, the company pays corporation tax on the gain, not capital gains tax. Corporation tax on chargeable gains is at the same rate as trading profits: 19% for profits up to £50,000, 25% for profits above £250,000, with marginal relief between.

This can be more tax-efficient than personal ownership, especially for higher rate taxpayers. However, extracting the profit from the company (by dividend or salary) triggers further tax. The overall effective rate may still be lower than personal CGT, depending on your circumstances.

If you are considering buying property through your limited company, speak to an accountant about the full tax picture, including stamp duty surcharges and the impact on your corporation tax position. Our services page covers how we help with property structuring.

Common Mistakes When Calculating Capital Gains Tax on Property

Here are the errors we see most often:

  • Forgetting the annual exempt amount. It is £3,000, not £6,000. And you cannot split it across multiple disposals in the same year if the total exceeds £3,000.
  • Claiming repair costs as improvements. Repainting, fixing a boiler, replacing a kitchen like-for-like: these are repairs, not improvements. They reduce rental income for income tax, not the gain for CGT.
  • Missing the 60-day deadline for residential property. HMRC charges interest from the due date. File within 60 days of completion, even if you have not finalised the exact figures. You can amend later.
  • Not using both spouses' allowances. If you own the property jointly, you each get the £3,000 allowance. If you own it solely, transferring half to your spouse before sale can save tax. The transfer itself is tax-free between spouses.
  • Assuming BADR applies automatically. It does not. You must claim it on your tax return. And the property must have been used in a trading business for 2 years. A buy-to-let portfolio is not a trade for BADR purposes.

How We Help with Property Disposals

As ICAEW qualified accountants, we review the full picture before you sell. That includes the ownership structure, the intended use of proceeds, and the timing of the disposal. We calculate the estimated tax, identify available reliefs, and file the returns on your behalf. For residential property, we handle the 60-day reporting so you do not miss the deadline.

If you are selling a property and want to know the tax bill before you exchange contracts, contact us for a consultation. We work with business owners across the UK, from a freelance consultant in Soho selling a second home in Kent to a partnership in the Jewellery Quarter in Birmingham disposing of a commercial unit.