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Capital gains tax on UK property explained
Are you planning to sell your home, other assets, or a second property? You may need to think about the implications of capital gains tax (CGT). Read on to find out more about capital gains tax in the UK, and how much you might have to pay.
Key takeaways
CGT is a tax on the profit when you sell an asset that’s increased in value
The capital gains tax-free allowance is £3,000
For disposals made on or after 30 October 2024, the lower rate of capital gains tax is 18%, and the higher rate is 24%
What is capital gains tax?
Capital gains tax is a tax that must be paid on any profits you make when you sell an asset, such as property, that has increased in value. CGT is only due on the profit you make, not on the full amount you sell your asset for.
For example, if you purchase an antique vase for £10,000 and later sell it for £30,000, you’ve earned £20,000. This £20,000 is the taxable amount, subject to some deductions (more on that below).
How does capital gains tax work?
Applying only to profits made, the UK’s capital gains tax is subject to an annual tax-free allowance of £3,000 in the tax year 2024/25. Married couples and civil partners who jointly share an asset can combine their allowances, making their total tax-free allowance £6,000.
Do I need to pay capital gains tax on my UK home?
Any property you sell in the UK may incur capital gains tax on profits made. However, if the property you’re selling is your main home, this is exempt from CGT due to private residence relief.
What qualifies as a main residence for CGT purposes?
For the purposes of CGT, a property is classed as your main residence if all the following apply:
- You have one home, and you’ve lived in it as your main home for all the time you’ve owned it
- You have not let part of it out (not including having a lodger)
- You have not used a part of your home exclusively for business purposes
- The grounds, including all buildings, occupy less than 5,000 square metres
- You did not buy it just to make a gain
If all of these points apply, you will automatically qualify for private residence relief, and this means you will not have to pay CGT when you sell the property. Otherwise, you may have to pay some tax. You can find out if you’re eligible for private residence relief here.
What are the capital gains rates?
Following changes announced by Chancellor Rachel Reeves as part of the Autumn Budget, these are CGT rates for basic rate taxpayers and higher rate taxpayers (for disposals made on or after 30 October 2024):
Tax band | Taxable income | CGT % rate on residential property gains | CGT % rate on other asset gains |
|---|---|---|---|
Basic rate | £12,571 to £50,270 | 18% | 10% |
Higher or additional rate | £50,271 and over | 24% | 20% |
Rachel Reeves also announced that, effective 6 April 2025, the rates of capital gains tax that apply to carried interest will rise from 10% and 28% to 32% and then to 36% in April 2026. This is the share of the profits which arise to managers of an investment fund where the investments in a fund perform above a certain level.
Capital gains tax rates for business asset disposal relief and investors’ relief will rise to 14% from 6 April 2025, and match the main lower rate of 18% from 6 April 2026.
What is the CGT allowance?
Your CGT allowance is the amount of capital gain you can earn that’s tax-free. For the 2024/25 tax year (6th April to 5th April), the amount you can earn tax-free is £3,000 - more than half of the previous tax year's allowance. Tax is only paid on profits over this amount.
If your asset or property is jointly-owned, you can combine your CGT allowances. Important points to note are that CGT allowance is not related to your personal tax allowance, and you cannot build up your CGT allowance as you can’t carry it over to the next tax year.
How much CGT will I have to pay?
Calculating capital gains tax when selling property will depend on your income, which determines whether you’re a basic rate or a higher rate taxpayer.
If you’re a higher rate taxpayer, CGT is calculated by deducting the price you purchased the property for from the new sale price. You’ll then be left with your profit. Payable CGT is 24% of that profit.
If you’re a basic rate taxpayer, CGT can be harder to calculate because you’ll need to work out personal income, profits and any other sources of income (such as the interest you might earn from your savings) to determine if that lifts you into the higher rate tax band. You’ll need to calculate your total income and deduct your personal allowance of £3,000 (2024/25) from that total.
What costs can I deduct from my taxable gain?
You can also deduct certain other costs from your gain when calculating CGT on property. These include stamp duty, estate agent and solicitors fees, as well as the cost of any renovations, for example an extension. However, you cannot deduct costs relating to the upkeep of the property.
When do I need to pay capital gains tax?
If you sold property in the UK on or after 6th April 2020, you must report and pay any tax due. You pay this tax by completing a ‘residential property return’.
Changes to the timescales for reporting and paying CGT were announced in the 2021 Autumn Budget. For property completion dates on or after 27 October 2021, you have 60 days in which to report and pay any CGT owed. If your completion date was between the 6th April 2020 and 26th October 2021, you must report and pay capital gains tax within 30 days of selling your property.
Can I avoid capital gains tax on my second home?
People who own two homes in the UK could consider which is worth the most money, and register that home as their main address for CGT purposes. However, the rules on doing this are stringent, and it’s best to consult a financial adviser before doing anything.
This information does not constitute financial advice. You should always do your own research to ensure that investments are right for your specific circumstances.
Do I have to pay capital gains tax on inherited property?
There is no CGT payable on death, but the value of the home will be included in the estate. This means that inheritance tax may be payable instead.
If you inherit a property and sell it without making it your home, you may have to pay CGT. The amount you have to pay is based on the increase in value between the time of death and the date of sale.
How can I reduce my CGT bill?
Capital gains tax on UK property is a complicated subject, so it’s always best to consult an expert for advice tailored to your situation. You might consider options like joint ownership with your spouse to effectively double your tax-free allowance, or timing the sale of a property until after 5 April to utilise a new tax year’s allowance.
What can I do with the profit I’ve earned?
If you’ve just sold an asset and paid capital gains tax, you might want to consider investing the money you’ve earned as profit into a lump sum savings account. The Raisin UK marketplace makes saving simpler by allowing you to browse, apply to open, and manage accounts with over 40 FSCS-protected banks and building societies - all in one place!