How much is Capital Gains Tax on properties

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit made from selling or disposing of certain assets, such as property, investments, and personal possessions, that have increased in value over time. In the United Kingdom, CGT is a tax that individuals, trustees, and companies may be liable to pay.

Who has to pay Capital Gains Tax?

If you’re a UK resident and you sell or dispose of certain assets, you may be required to pay CGT on the gain or profit made from the sale. These assets include any residential or non-residential property, such as buy-to-let properties, second homes, and commercial properties, and may also include investments or valuable possessions such as art and antiques. Non-UK residents may also be subject to CGT on the sale of UK residential property. For those inheriting a house from their parents, CGT is usually calculated on the value of the property at the date of inheritance, not the original purchase price. This is an important consideration if you’re deciding whether you should sell or rent out the house you inherited.

How long do you need to live in a property to avoid Capital Gains Tax?

If you sell a property that has been your main residence throughout the period of ownership, you may be eligible for Private Residence Relief (PRR), which allows you to avoid paying CGT on the gains made from the sale.

PRR relief allows you to claim relief for the last 9 months of ownership, even if you have moved out of the property before selling it. However, if you own more than one property, you must nominate which property is your main residence within two years of acquiring the additional property.

In addition, if you have ever used the property as your main residence, you may be able to claim “lettings relief” if you have rented out part of the property. This relief can further reduce your CGT liability, up to a maximum of £40,000 per owner.

How is Capital Gains Tax calculated?

CGT calculation involves subtracting the asset’s original cost (also known as the “base cost”) from the selling price or market value at the time of disposal. The resulting gain is then subject to CGT at the applicable rate.

For individuals, the CGT rates depend on their total taxable income and the type of asset being sold. As of the 2025/2026 tax year, the rates are as follows:

18% for basic rate taxpayers on gains that fall within their basic income tax band, 24% for higher- and additional-rate taxpayers on gains above the basic rate band, and 32% for carried interest gains. The annual tax-free allowance (Annual Exempt Amount) is now £3,000.

For example, a basic rate taxpayer bought a second house for £200,000 and sold it for £250,000. £250,000, less the investment cost (£200,000) and the AEA (£3,000), leaves £47,000 which is subject to Capital Gains Tax. At 18%, this would be a CGT amount of £8,460.

It’s worth noting that there are different rules and rates for trustees and companies, so it’s important to consult with a tax professional or accountant for accurate and up-to-date information.

How to reduce your Capital Gains Tax liability

Although there are a number of ways you may be able to use to reduce your CGT liability, here are some of the most common ways:

Principal Private Residence (PPR) Relief

If you have a property that you use as your main residence, you may be eligible for PPR Relief. This relief allows you to exempt a proportion of the gains from CGT when you sell your main residence.

The proportion of the gain that is exempt depends on the period of time you have lived in the property as your main residence, as well as other factors. The final 9 months of your ownership (36 months for people with disabilities or residents of care homes) always qualify for relief, provided it has been your main residence at some point. Read government advice for further information.

Lettings Relief

If you have let out a property that has also been your main residence at some point, you may be eligible for Lettings Relief. This relief provides an additional exemption on top of PPR Relief for the time the property was let out. Lettings Relief can help reduce CGT liability on the sale of a property that has been both a main residence and a rental property.

Consider the holding period

The length of time you own a property can impact your CGT liability. In the UK, if you hold a property for more than 3 years, you may be eligible for a lower CGT rate, known as the “long-term” or “tapered” rate. This means that the longer you hold the property, the lower your CGT liability may be.

Use of Annual Exempt Amount

As mentioned earlier, every individual is entitled to an annual tax-free allowance, known as the Annual Exempt Amount. By spreading out the sale of assets over different tax years, you may be able to utilise multiple years’ Annual Exempt Amounts and potentially reduce your overall CGT liability.

Gift assets

Another strategy to reduce CGT liability is to gift assets to family members or charitable organisations. By doing so, you may be able to transfer the ownership of the assets and potentially avoid CGT altogether. However, it’s important to consider the implications of gifting assets, including potential inheritance tax implications and seek professional advice before proceeding.

Consider offsetting losses

If you have incurred losses from the sale of other properties or assets, you can offset those losses against your gains from the sale of a property to potentially reduce your CGT liability.

Seek professional advice

Property taxation can be complex, and CGT rules and regulations are subject to change. It’s highly recommended to seek professional advice from a qualified tax advisor or accountant who can provide personalised guidance on how to effectively reduce your CGT liability in regard to property, based on your specific circumstances.
If you’re unsure whether you should sell or rent out the house you inherited, consult a qualified tax advisor. They can guide you on whether holding the property, selling immediately, or renting it out makes the most financial sense.

Can I avoid Capital Gains Tax on a first property?

Generally, you don’t have to pay CGT on your main property, this is due to the Private Residence Relief, as discussed above. However, there are occasions when your main residence is liable for CGT, these include:

• The property covers more than 5,000 square metres
• Part of your home is solely for business use
• You’re a property developer who bought it to make a profit
• You own another home that could legitimately be considered your main residence
• You’ve sub-let part of your home (having a lodger doesn’t count).

Can I avoid Capital Gains Tax on a second property?

It’s possible to avoid or at least minimise CGT on a second home, but this requires careful planning and adherence to relevant tax laws. If in doubt, consult a tax professional to ensure your intentions are within the law.

If you use your second home as your main residence, you may be eligible for Principal Private Residence (PPR) Relief. To qualify, you must actually live in the property as your main residence, and factors such as the duration of your residency and the use of the property as your main residence will be considered. It’s important to note that you cannot claim PPR Relief on more than one property at a time, so if you have multiple properties that could be considered your main residence, you will need to choose which one to claim relief on.

If you have let out your second home for any length of time, you may be eligible for Lettings Relief. This relief provides an additional exemption on top of PPR Relief for the period of time the property was let out. Recent changes to the Lettings Relief rules have significantly restricted its availability and it now only applies in limited circumstances, such as when you share your main residence with a tenant.

The timing of when you sell your second home can impact your CGT liability. By strategically planning the timing of the sale, you may be able to take advantage of any changes in tax rates or allowances that could reduce your CGT liability. For example, the annual exempt amount is currently approximately half the value it was in 2018-2022, and it may return to the c. £12,000 level in the next financial year, so waiting until the AEA rises again could save you around £6,000.

Transferring ownership of your second home to a spouse or civil partner who has a lower income or is in a lower tax bracket may allow you to reduce your CGT liability. This can be done through gifts or transfers, but it’s important to seek professional advice as there may be other tax implications to consider.

Tips for selling your property to minimise Capital Gains Tax

There are a number of ways you can sell your property while minimising your CGT obligations: 

• Sell your home in a new financial year when the Annual Exempt Amount resets
• Make your secondary home your primary residence so you benefit from Private Residence Relief when you come to sell that property
• Offset any losses against the profits made on the property
• Check if you are eligible for any Lettings Relief if you have let out your second property
• Transfer ownership of the property to a spouse or family member who is in a lower tax bracket.

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