UK Capital Gains Tax on Property: Rates, Allowances, and Strategies

Tax & Legal · 7 min read

Capital Gains Tax (CGT) is levied on the profit you make when selling an investment property. Understanding CGT is critical for exit planning and portfolio strategy.

Current CGT Rates (2025/26)

CGT on residential property is charged at:

18% for basic-rate taxpayers
28% for higher and additional-rate taxpayers

These rates are higher than CGT on other assets (10%/20%), reflecting the government's focus on property investment taxation.

What Counts as a Capital Gain?

Your capital gain is:

Capital Gain = Sale Price - Purchase Price - Allowable Costs Allowable Costs Include: - Original purchase price - Stamp duty paid on purchase - Legal fees and survey costs - Estate agent and legal fees on sale - Major improvements (not repairs)

Example Calculation

Sale Price£400,000

Original Purchase (2018)-£250,000

Stamp Duty (2018)-£7,500

Purchase Costs-£2,000

Kitchen Extension (2020)-£25,000

Sale Costs (Agent + Legal)-£8,000

Capital Gain£107,500

Annual CGT Allowance

Every UK taxpayer has an annual CGT exemption (currently £3,000 for 2025/26, down from £6,000 in 2023/24). This means the first £3,000 of gains each tax year is tax-free.

Timing Strategy: If your gain is slightly above the allowance, consider splitting the sale across two tax years to use two years' worth of exemptions.

CGT on SPV (Company-Owned) Property

Properties owned by limited companies do not pay CGT. Instead, sale proceeds are subject to corporation tax (19-25%) on the gain.

However, extracting proceeds from the company triggers dividend tax or income tax, creating potential double taxation. This is why exit strategy must be modeled carefully when using SPVs.

Principal Private Residence Relief

If you've lived in the property as your main home at any point, you may qualify for Private Residence Relief (PRR), which exempts part or all of the gain from CGT.

Key Rules:

The final 9 months of ownership always qualify for relief (even if rented out)
Any period you lived there as your main home is exempt
Lettings relief (previously available) was abolished in 2020

Example: Partial PRR

Property owned: 10 years Lived in as main home: 3 years Rented out: 7 years PRR Exemption: - 3 years lived in = 3/10 exempt - Final 9 months = 0.75 years exempt - Total exempt: 3.75/10 = 37.5% of gain If gain = £100,000: - Exempt: £37,500 - Taxable: £62,500

Reporting and Payment Deadlines

Since April 2020, you must report and pay CGT on UK residential property within 60 days of completion using the online CGT property disposal service.

Failure to report on time triggers penalties and interest charges. This is separate from your annual Self Assessment tax return (though you still report it there too).

Strategies to Minimize CGT

1. Use Your Annual Allowance

Sell properties strategically to stay within the £3,000 exemption where possible, or spread sales across tax years.

2. Transfer to Spouse

Transfers between spouses are CGT-free. If your spouse is a basic-rate taxpayer, transferring the property to them before sale reduces the CGT rate from 28% to 18%.

3. Offset Losses

Capital losses from other asset sales can be offset against property gains. Keep records of any losses to claim relief.

4. Time Your Sale

If your income will drop in a future tax year (e.g., retirement), delay the sale to benefit from the lower 18% rate as a basic-rate taxpayer.

5. Reinvestment Relief (Business Property)

If you're selling commercial property and reinvesting proceeds into another business asset, you may qualify for rollover relief, deferring the CGT liability.

How 1st Numbers Helps

1st Numbers estimates CGT exposure across your portfolio based on:

Current valuations vs purchase price
Your marginal tax rate (18% or 28%)
Annual exemption utilization
SPV vs personal ownership structure

You can model hold vs sell scenarios with projected CGT impact, helping you time exits strategically and minimize tax drag.

Disclaimer: Tax rules change frequently. This guide is for educational purposes only. Always consult a qualified accountant or tax advisor before making decisions.