What Are the Taxes on Selling a House?

Capital Gains Tax (CGT) is a tax on the profit you make from selling a property (or other assets) that has increased in value.

It is called Capital Gains Tax because it is the gain you’ve made that is taxed, not the entire proceeds from the sale. For example, if you bought a house for £200,000 and sold it five years later for £250,000, your gain is £50,000 and this is the amount that CGT is payable on.

Not everyone who sells a house in England is liable to pay CGT. You are exempt from paying the tax if any of the following apply to you:

• • The gain you have made does not exceed your tax-free allowance for the year (£6,000 for 2023/2024 reducing to £3,000 from 2024/25 tax year).

• • You gift the property to your spouse or partner

• • You gift the property to a charity
• You sell your main or only home (although there are exceptions to this, for example, if you have sublet part of it).

You probably will have to pay Capital Gains Tax if the property you are selling is:

• • A second home

• • A buy-to-let property
• A business

However, the amount due may also be reduced if the property you sell is a business asset, for example, a property developer who buys and sells property for a living.
The rules around eligibility for Capital Gains Tax may seem overwhelming and complex. It’s always best to check with a qualified legal professional to ensure that you understand what you’re liable to pay for.

The CGT rate varies depending on your income and the size of the gain.

If you are a higher-rate taxpayer (you earn between £50,271 and £125,140), you’ll pay 28% on your gains from residential property. To calculate the exact amount of tax due, subtract your tax-free allowance from the amount you have gained by selling the property. You will be charged 28% CGT on the resulting amount.

For example, you gain £50,000 from selling a property. Deducting your £6,000 tax-free allowance leaves £46,000 that is taxable at the 28% rate. The amount of tax due is £12,880.

If you pay the basic rate of tax, the maths is a little harder! If the amount you gain from selling a residential property minus your tax-free allowance pushes you into the higher tax bracket, you will pay 28% on everything gained/earned in this band and 20% on the earnings that fall within the basic tax rate.

If you sell a property that incurs CGT, you must submit a property return to HMRC and pay what you owe within 60 days of selling your property.

If you are liable to pay Capital Gains Tax, you must pay it. There is no way to avoid the tax altogether.

However, there are a number of ways you can minimise your CGT bill:

1. 1. Deduct certain buying and selling costs including conveyancing fees, estate agent fees and any stamp duty incurred when buying the property.  Learn more about selling a house fees.
   2. Deduct any costs involved in improving your asset (the property!), but you can’t deduct any maintenance costs.
   3. You could explore offsetting losses you’ve made selling other assets.  For example if you owned several properties and made a loss when selling one, you can use that against a gain made selling another.  But it is a good idea to get expert financial advice to make sure you do it correctly.
   4. You could add your spouses name to the property as this doubles your CGT allowance.
   5. Take notice of the different CGT bands.  If you pay tax at a higher rate and your spouse is a basic rate tax payer, then you could transfer the property into their name.
   6. Think about the best time to sell.  If you have more than one property to sell but have used up your CGT allowance for this tax year, then would you be better to wait till next year to sell again?
   7. And if you are selling a rental property that you previously lived in, you could be eligible for Letting Relief which will reduce your CGT bill.

It is always worth seeking some free legal advice to check that you aren’t paying more than you need to.