Paying Capital Gains Tax (CGT) can be confusing at the best of times. With property, the rules are even more complex, and consistent increases in UK house prices mean that selling an additional home can be expensive if you don’t know the rules.
But there are instances when you don’t need to pay Capital Gains Tax on property. In this article, you’ll learn when you’re charged CGT, the exemptions that can apply, and how you can sell efficiently to keep more of what’s yours.
When do you pay Capital Gains Tax on property?
HMRC charges you Capital Gains Tax when you make significant profits on a sale. You’re only charged the tax on your profit, not the entire sale price of the item.
Your primary residence is exempt from Capital Gains Tax (more on this later). This means that, if you only have one home, you don’t pay CGT when you sell it. But the tax does apply if you own multiple properties in the UK in most cases.
Here are some examples of properties that are liable for CGT:
- Business premises
- Buy-to-let properties
- Inherited property
- Land Second homes
If you can prove the property is a ‘business asset’, you can apply for some tax relief to reduce your CGT bill. There are also different rules depending on the type of business you run.
For example, if you’re a property developer, your entire business is built around buying and selling homes, so you’re not charged CGT when you make a sale. Instead, HMRC charge property developers either Income Tax or Corporation Tax, depending on whether you’re a sole trader, or a limited company.
How much is Capital Gains Tax on property?
Everyone gets an annual CGT allowance
All UK residents are entitled to a CGT allowance, which means you can earn a maximum of £3,000 tax-free every year.
Understanding the different CGT rates
HMRC charges different percentages of Capital Gains Tax depending on your income. But you may pay less if you’re selling a property that’s used for business purposes, provided it’s not a single-room home office, which doesn’t count.
Once your gain exceeds £3,000, you’ll pay:
- 18% if you’re a basic rate taxpayer or below
- 24% if you’re a higher rate taxpayer or above
- 14% if you’re selling a business asset*
*This rate only applies if you’re also a sole trader, business partner, or someone with shares in a ‘personal company’.
For more details, you can visit HMRC’s website or speak with a financial advisor to determine whether you qualify for the lower rate.
The factors that affect the CGT you pay
The exact amount of Capital Gains Tax you pay depends on a handful of factors. These include:
- Property value: If a qualifying property rises in value, you’re charged CGT on the increase you enjoy, not the entire sale price.
- Income: HMRC charges you differently depending on your annual earnings when you sell a residential property. This is because your gain counts towards your income, so turning a significant profit from a sale could push your earnings into the next tax bracket.
- Dates: If you’ve inherited property, your gain is calculated from the moment your loved one passed away. The gains your loved one earned in their lifetime are considered irrelevant in terms of your Capital Gains Tax charge.
There are additional taxes you may need to pay alongside Capital Gains Tax when selling a property that isn’t your primary residence. Let’s explore an example below.
How much tax you might pay when selling another property
How valuations affect Capital Gains Tax on property
Say you purchased a second residential property for £150,000 ten years ago. In that time, the property grew in value by £100,000. When you sell the property, your allowance covers £3,000 of the gain, so this leaves a taxable gain of £97,000.
Your income is £80,000 a year, which makes you a higher rate taxpayer. As a result, you pay 24% in Capital Gains Tax on the property. This means HMRC charges you £23,280 in CGT, which leaves you with a final profit of £73,720.
An increase in earnings like this can affect the level of Income Tax you pay. This is because the amount you gain after tax is added to your income for the year.
How a property sale can impact your Income Tax
Your salary is £80,000 a year. The profit you earn from the sale means that after you deduct CGT, your income for the current tax year has increased to £153,720.
The additional rate of tax kicks in when you earn over £125,140 a year. This means that HMRC will charge you an increased rate of 45% Income Tax on £28,580, which is the amount that took you over the limit for the higher rate. You’ll also lose your Personal Allowance, which is the initial tax-free sum of £12,570 that’s granted to most taxpayers in the UK.
Capital Gains Tax on Inherited Property
When a loved one passes away and leaves you property in their will, you have some time to decide what to do with it. This is because HMRC allows you two years to declare which property is your primary residence when you receive it from an inheritance. Your primary residence is exempt from Capital Gains Tax.
If you don’t declare a primary residence, HMRC will decide which property counts when you sell it.
While you may be exempt from Inheritance Tax due to the seven year rule, you’ll still need to pay CGT when you sell.
Combining your CGT allowances to maximise tax relief
If you’re married or in a civil partnership, you can combine your £3,000 CGT allowances, provided you own the property jointly.
You can’t carry your allowance over from one year to the next. If you don’t use it, you lose it.
How to pay Capital Gains Tax on property
You pay Capital Gains Tax on property when you ‘complete’ the sale. This is when the property has legally changed hands.
From the day you complete, you have exactly 60 days to pay HMRC the CGT you owe. If you don't pay on time, HMRC will not only charge you a penalty, but interest payments on top.
You must create or sign in to your Government Gateway account to pay Capital Gains Tax on property. You’ll also need to know the details of the price you purchased your asset, when you took ownership, and whether you made improvements to the property.
When you don’t pay Capital Gains Tax on property
You don’t have to pay Capital Gains Tax if your husband, wife, or civil partner inherits a gift, which includes property. You’re also not charged CGT if you give your property to a charity.
Frequently asked questions on paying Capital Gains Tax on property
How can I reduce Capital Gains Tax on my property?
There are ways to reduce Capital Gains Tax on property, but the rules are complex and will depend heavily on your personal circumstances. For example, if you’re married or in a civil partnership, you could consider joint ownership of a property to increase your annual CGT allowance to £6,000.
If you’re unsure whether or not you can benefit from reductions in Capital Gains Tax, speak with a qualified financial adviser. Financial advisers can provide guidance on how complicated tax rules apply to your personal finances.
Do I pay 18% or 28% CGT?
Basic rate taxpayers pay 18% CGT.
Higher rate taxpayers and above pay 24% CGT.
As of 06 April 2025, nobody pays 28% in CGT. This is because the rules were changed in the Autumn Budget in 2024.
Your rate of Capital Gains Tax can differ if the property is a business asset, so it’s important to seek professional advice if you’re unsure how you’re affected.
What is the seven year rule for Capital Gains Tax?
The seven year rule relates to Inheritance Tax (IHT). It means that if you receive a gift from a loved one more than seven years before they pass away, there is no Inheritance Tax to pay. You’ll still need to pay Capital Gains Tax when you sell a property you inherit if you make a profit.
Maximise allowances when paying capital gains tax on property
HMRC provides tax relief in the form of a handful of allowances, and Capital Gains Tax is no different. Depending on who owns the property, it may be possible to combine allowances with a spouse, but you should always consult a financial adviser before deciding to do this.
In general, it’s a good idea to take advantage of tax rules designed to help you keep more of what’s yours.
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