What is Capital Gains Tax on Property in the UK?
Capital gains tax (CGT) is the tax you pay on the profit when you sell or dispose of an asset that has increased in value. For property, the rules differ depending on whether the property is your main home, a second home, a buy-to-let, or a commercial property.
If you sell a property that is not your main residence, you will likely owe CGT on the gain. The gain is the difference between what you paid for it and what you sold it for, minus certain allowable costs. As ICAEW qualified accountants, we deal with this regularly for clients across the UK, from a landlord in Birmingham's Jewellery Quarter selling a flat to a tech founder in Shoreditch disposing of a company-owned office.
The rates and rules changed significantly from 30 October 2024. This guide covers the current position for the 2025/26 tax year, including the new 18% and 24% rates for residential property gains, the 60-day reporting requirement, and the reliefs that can reduce your bill.
Which Properties Are Subject to Capital Gains Tax?
Not every property sale triggers CGT. Your main home is usually exempt under Private Residence Relief (PRR). But the following property disposals do attract CGT:
- Second homes and holiday homes - any property that is not your main residence.
- Buy-to-let residential properties - including flats, houses, and HMOs.
- Commercial property - offices, shops, warehouses, and industrial units.
- Land - development land or investment land.
- Property held in a limited company - the company pays corporation tax on the gain, not CGT. But when you extract the proceeds as dividends or on sale of shares, you may pay CGT personally.
- Inherited property - if you inherit a property and later sell it, you may owe CGT on the increase in value since inheritance.
If you sell your main home, you generally do not pay CGT. But there are exceptions: if you let part of it out, use part exclusively for business, or the garden exceeds half a hectare, you may have a partial liability.
Capital Gains Tax Rates for Property in 2025/26
The rates changed at the Autumn Budget on 30 October 2024. For disposals on or after that date, the rates are:
| Type of gain | Basic rate taxpayer | Higher rate taxpayer |
|---|---|---|
| Residential property gain | 18% | 24% |
| Non-residential property gain (commercial, land, shares) | 10% (or 18% above the basic rate band) | 24% |
| Business Asset Disposal Relief (BADR) gains | 14% (rising to 18% from 6 April 2026) | 14% (rising to 18%) |
Before 30 October 2024, residential property gains were taxed at 18% for basic rate taxpayers and 28% for higher rate taxpayers. The higher rate dropped from 28% to 24%, which is a meaningful saving on a large gain.
Your tax band is determined by your total taxable income for the year, including the gain itself. If your income (salary, dividends, rental profits) is £50,000 and you make a £60,000 gain on a property, the gain pushes you into the higher rate band. The first £270 of the gain uses your remaining basic rate band, and the remaining £59,730 is taxed at 24%.
Worked Example: Buy-to-Let Sale by a Basic Rate Taxpayer
Sarah owns a flat in Bristol's Harbourside that she let out for 8 years. She bought it for £180,000 in 2017 and sells it in June 2025 for £310,000. Her total gain is £130,000.
Her other income is £35,000 (salary from her day job). The basic rate band is £37,700 for 2025/26. She has £15,200 of unused basic rate band (£50,270 minus £35,000).
Her CGT calculation:
- £15,200 taxed at 18% = £2,736
- Remaining gain £114,800 taxed at 24% = £27,552
- Total CGT bill: £30,288
She must report and pay this within 60 days of completion using the 60-day CGT property return.
The 60-Day Reporting Rule for UK Residential Property
If you sell a UK residential property and owe CGT, you must report the gain and pay the tax within 60 calendar days of completion. This applies whether you are UK resident or non-resident. The deadline is strict. Miss it and you face penalties and interest.
You report using HMRC's online CGT on UK property service. You will need details of the purchase price, sale price, allowable costs (legal fees, stamp duty, estate agent fees, improvement costs), and your income for the year.
The 60-day return is a provisional calculation. You also report the gain on your Self Assessment tax return (SA100 or SA108) at the end of the tax year. If the 60-day payment was wrong, you adjust it on the annual return. You do not pay twice.
For commercial property, the 60-day rule does not apply. You report the gain on your Self Assessment return by 31 January after the tax year.
What Happens if You Miss the 60-Day Deadline?
HMRC charges penalties:
- Day 1 to 6 months late: £100 fixed penalty
- 6 to 12 months late: £300 or 5% of the tax due (whichever is higher)
- 12+ months late: up to 100% of the tax due
Interest also accrues on unpaid tax from the due date. The current interest rate is 7.25% on late payments. If you know you will miss the deadline, file the return as soon as possible and pay what you can. HMRC is less aggressive on penalties if you voluntarily disclose.
Allowable Costs: What You Can Deduct
You do not pay CGT on the full sale price. You deduct the following to arrive at your gain:
- Purchase price - what you paid for the property.
- Stamp duty land tax (SDLT) - the tax you paid on purchase.
- Legal fees - solicitor costs on purchase and sale.
- Estate agent fees - commission and marketing costs.
- Surveyor fees - valuation or structural survey costs.
- Improvement costs - capital improvements that add value or extend the property. Not routine repairs or maintenance. Replacing a kitchen is an improvement. Repainting the hallway is not.
- Inheritance tax (IHT) - if you inherited the property and IHT was paid on it, you can deduct the IHT proportion from the gain.
Keep all receipts and invoices. HMRC can ask for evidence up to 6 years after the disposal. If you cannot prove a cost, you cannot deduct it.
Reliefs That Reduce Capital Gains Tax on Property
Several reliefs can reduce or eliminate your CGT bill. The most common for property are:
Private Residence Relief (PRR)
If the property was your main home at any time, the final 9 months of ownership are always treated as deemed occupation. This means the gain for those 9 months is exempt. If you lived in the property for the whole ownership period, the entire gain is exempt.
If you let the property out while you lived elsewhere, you may qualify for Lettings Relief. This relief is now restricted to periods where you lived in the property at the same time as the tenant (e.g. lodger arrangements). It no longer applies to buy-to-lets where you moved out entirely.
Business Asset Disposal Relief (BADR)
If you sell a property used in your business (e.g. a workshop, office, or storage unit) and you are a sole trader or partnership, you may qualify for BADR. The gain is taxed at 14% in 2025/26 (rising to 18% from 6 April 2026). You must have owned the business asset for at least 2 years. The lifetime limit is £1 million of gains.
BADR does not apply to residential buy-to-lets unless you are a furnished holiday let that meets the qualifying conditions (you let it commercially, for at least 105 days per year, and it is available for 210 days).
Rollover Relief
If you sell a business property (commercial premises) and reinvest the proceeds into another business asset within 3 years, you can defer the gain. The gain is deducted from the cost of the new asset. You pay CGT only when you eventually sell the new asset without reinvesting.
This is common for growing businesses that outgrow their premises. A 4-employee software consultancy in Manchester turning over £420,000 might sell its Northern Quarter office and buy a larger space at MediaCity. Rollover relief defers the gain.
Gift Relief (Hold-Over Relief)
If you give a property to someone (or sell it below market value), you can claim Gift Relief to defer the gain. The recipient inherits your base cost and pays CGT when they sell. This is useful for transferring property to a spouse or into a trust. It does not apply to companies.
Property Held in a Limited Company
If your limited company owns property, the company pays corporation tax on the gain, not CGT. The corporation tax rate is 19% to 25% depending on profit level. This can be lower than the personal CGT rates.
But there is a catch. When you extract the sale proceeds from the company (as dividends or on winding up), you pay tax personally. Dividend tax rates are 8.75%, 33.75%, or 39.35%. If you close the company and take capital distributions, you may pay CGT on the gain in your shares, potentially at 14% (BADR) if you qualify.
The total tax on a property held in a company can be higher than holding it personally, because you pay both corporation tax and extraction tax. Always model both scenarios before deciding where to hold property.
For a limited company director considering property investment, we recommend running the numbers through our calculators or speaking to our team about the best structure.
Commercial Property and Capital Gains Tax
Commercial property (offices, shops, warehouses, industrial units) is treated differently from residential. The 60-day reporting rule does not apply. You report the gain on your Self Assessment return by 31 January after the tax year.
The rates are 10% (or 18% above the basic rate band) for basic rate taxpayers and 24% for higher rate taxpayers. These are lower than the residential property rates.
If you sell a commercial property that you used in your trade, you may qualify for BADR (14% rate, £1m lifetime limit) or Rollover Relief. Many sole traders and partnerships in trades, manufacturing, and retail benefit from these reliefs.
How to Report and Pay Capital Gains Tax on Property
The process depends on the property type:
UK Residential Property
- Complete the 60-day CGT property return online via HMRC's service within 60 days of completion.
- Pay the estimated CGT at the same time.
- At year-end, report the gain on your Self Assessment tax return (SA108 Capital Gains pages).
- If the 60-day payment was wrong, adjust it on the annual return. You do not pay twice.
Commercial Property or Overseas Property
- No 60-day return required (unless you are non-UK resident selling UK residential property).
- Report the gain on your Self Assessment return by 31 January after the tax year.
- Pay the CGT by the same deadline.
If you are not registered for Self Assessment, you must register by 5 October after the tax year in which you sold the property. You can register online via HMRC's website.
Common Mistakes and How to Avoid Them
We see these mistakes regularly in our practice:
- Missing the 60-day deadline - the most common error. Set a calendar reminder for day 55 after completion.
- Forgetting allowable costs - dig out your purchase paperwork. Include SDLT, legal fees, and improvement costs. Many clients forget the SDLT they paid.
- Not deducting estate agent and legal fees - these are allowable on both purchase and sale.
- Confusing repairs with improvements - repairs are not deductible for CGT purposes (they are deductible against rental income instead). Improvements are deductible.
- Assuming the main home exemption applies automatically - if you let part of your home or used it for business, you may have a partial liability.
- Not considering the interaction with Inheritance Tax - if the property is likely to be subject to IHT, holding it personally vs in a company has different outcomes.
Capital Gains Tax Planning Tips for Property Owners
Planning can reduce your CGT bill significantly. Here are practical strategies:
- Time the sale across two tax years - if you are a basic rate taxpayer with unused band, selling in April vs March can give you an extra year's allowance.
- Use your annual exempt amount - for 2025/26, the CGT annual exempt amount is £3,000. If your gain is small, you may pay no tax.
- Transfer to a spouse - transfers between spouses are tax-free. If your spouse has unused basic rate band or annual exempt amount, transfer the property to them before sale. They must genuinely own it, not just be a nominee.
- Claim all reliefs you qualify for - PRR, Lettings Relief, BADR, Rollover Relief. Each has specific conditions. Check them carefully.
- Consider the holding structure - if you are buying property now, think about whether to hold it personally, in a company, or in a trust. The decision affects CGT, income tax, and IHT. There is no one-size-fits-all answer.
If your circumstances are complex, speak to a qualified accountant before you exchange contracts. Once the sale completes, your options for reducing the gain are limited. Our ICAEW qualified team can help you model the tax outcomes and choose the best strategy. Contact us to discuss your property disposal plans.
Summary: Key Takeaways
- Residential property gains: 18% basic rate, 24% higher rate from 30 October 2024.
- Commercial property gains: 10% basic rate, 24% higher rate.
- 60-day reporting and payment deadline for UK residential property. Strict.
- Annual exempt amount: £3,000 for 2025/26.
- Private Residence Relief exempts your main home. Lettings Relief is now very restricted.
- BADR gives 14% rate on qualifying business property disposals (rising to 18% from April 2026).
- Rollover Relief defers gains on business property reinvestment.
- Property in a company: corporation tax on the gain, then extraction tax. Model both layers.
- Keep all receipts and paperwork for 6 years.
Capital gains tax on property in the UK is not simple, but with the right planning you can keep more of your profit. If your turnover crossed the VAT threshold or you are selling a significant