Selling a property in the UK can raise questions about whether you need to pay Capital Gains Tax (CGT).
The rules vary depending on whether the property is your main home, a second home, a rental property, or an inherited asset.
Understanding when CGT applies, how it is calculated, and the ways to reduce your liability can help you plan a sale more effectively.
This guide explains when you may need to pay capital gains tax when selling a house, how the reliefs and allowances work, and what to expect when reporting your gain to HMRC.
What Is Capital Gains Tax in the UK?
Capital Gains Tax (CGT) is applied when you sell an asset for more than you originally paid for it. With property, the tax is charged only on the profit you make, not on the total sale price.
This means if you bought a property for £200,000 and sold it for £250,000, CGT would apply only to the £50,000 gain, after deducting any allowable costs.
In the UK, CGT applies differently depending on the type of property being sold. Most people will not pay CGT on the sale of their main home because of Private Residence Relief.
However, if the property is a second home, a rental property, or one that you have inherited and later sell, CGT may apply.
The gain is calculated from the date you acquired the property, not from when you first considered selling.
When Do You Have to Pay Capital Gains Tax on a House Sale?
In the UK, Capital Gains Tax (CGT) on a house sale applies when you sell a property that is not fully covered by Private Residence Relief. This typically means the property is not your only or main home, or you have used it in a way that limits your eligibility for full relief.
CGT applies when:
- The property is a second home, holiday home, or buy-to-let investment.
- The home was bought specifically to sell at a profit (for example, by property developers).
- Part of the property has been used exclusively for business purposes, such as a shop or office.
- You have rented out a portion of the home (other than taking in a single lodger).
- The grounds exceed the permitted limit of 5,000 square metres, including all outbuildings.
- You own multiple homes, and HMRC determines that another property qualifies as your main residence.
Special Cases for Your Main Home
Most homeowners do not pay CGT when selling their main residence due to Private Residence Relief. However, you could face a CGT bill if:
- You moved out and rented the property before selling, reducing the period of exemption.
- The home was not your main residence for the entire ownership period (e.g., it was an investment property before you moved in).
- You split your time between two homes without formally nominating one as your main residence to HMRC.
Impact of Property Ownership Status
How you own the property also affects your CGT liability:
- Joint ownership: Each owner’s share of the gain is taxed separately, and each can use their individual CGT allowance.
- Trust ownership: CGT rules for trusts can be more restrictive, and allowances differ.
- Company-owned property: Gains are subject to Corporation Tax rather than personal CGT rates.
Example Scenarios
- Second Home Sale: You bought a cottage for £150,000, used it as a holiday home, and sold it for £250,000. After deducting purchase costs, your taxable gain may be £95,000, on which CGT is due.
- Buy-to-Let Disposal: A flat purchased for £180,000 is sold for £300,000 after being rented out for 10 years. PRR does not apply, so CGT is payable on the gain after allowable deductions.
- Main Home with Business Use: You sell a home where one room has been used exclusively as a photography studio. The gain attributed to that part of the property will not qualify for PRR and will be taxed.
In every case, HMRC expects accurate calculation of the gain, application of the correct allowances, and payment within the 60-day reporting period for UK residential property.
How Does Private Residence Relief Work?
Private Residence Relief (PRR) is the main reason most UK homeowners do not pay CGT when selling their primary home. To qualify for full PRR:
- The property must have been your main home throughout the period of ownership
- You must have used the home solely for residential purposes
- The total grounds, including all buildings, must be 5,000 square metres or less
- You must not have let out any part of the property other than to a single lodger
If these conditions are not met, you may receive partial relief, meaning part of the gain is exempt while the remainder is taxable.
For example, if you lived in the home for 5 years and rented it for 3 years before selling, you may be exempt for the 5 years you lived there and partially liable for the rest.
What Are the Current Capital Gains Tax Rates for UK Property Sales?
Capital Gains Tax rates for residential property in the UK are determined by your Income Tax band, not as a flat rate for everyone. This means the gain you make from selling a property is added to your other taxable income for the year.
Depending on the combined figure, the whole gain or part of it may be taxed at the basic rate or the higher rate for CGT on residential property.
Current Residential Property CGT Rates
The rates for the 2025–26 tax year are:
| Income Tax Band | CGT Rate on Residential Property |
| Basic rate taxpayers | 18% |
| Higher/additional rate taxpayers | 24% |
These rates are different from CGT on most other assets (such as shares), which are taxed at 10% and 20% respectively. Residential property has its own higher rates because it is considered a separate asset class with specific tax treatment.
How Your Income Tax Band Affects CGT?
When you sell a property, your taxable gain (after deducting allowances and reliefs) is added to your total income for the year.
- If the gain keeps you within the basic rate threshold, it is taxed at 18%.
- If the gain takes you above the higher-rate threshold, the portion above the threshold is taxed at 24%.
Example Calculation with Mixed Rates
Let’s assume:
- Annual salary: £35,000
- Taxable gain from selling a rental property: £20,000
- Basic rate income tax threshold: £50,270
Step-by-step:
- Add your income (£35,000) to your gain (£20,000) = £55,000 total taxable amount.
- The first £15,270 of the gain (up to £50,270 total) is taxed at 18%.
- The remaining £4,730 of the gain is taxed at 24%.
This means you pay:
- £15,270 × 18% = £2,748.60
- £4,730 × 24% = £1,135.20
- Total CGT bill = £3,883.80
Special Considerations
- Married couples and civil partners can transfer property between them without triggering CGT, which can help use the lower tax rate band of one partner.
- If your gain is small enough to keep you in the basic rate band, you’ll avoid the 24% rate entirely.
- Non-UK residents selling UK property must also pay CGT and are subject to the same rates.
Key Tip
Because your total income for the year affects the CGT rate you pay, timing a sale in a year when your income is lower can make a significant difference to the final tax bill.
How Is Capital Gains Tax Calculated When Selling a House?
Calculating CGT involves several steps:
- Identify the sale proceeds: The amount you received for the property.
- Deduct the purchase price: The amount you originally paid.
- Subtract allowable costs: These may include:
- Solicitor or conveyancing fees
- Estate agent fees
- Stamp duty paid when buying
- Improvement costs such as extensions or new kitchens (not routine repairs)
- Apply the annual allowance: For 2025–26 this is £3,000 per individual.
- Work out the taxable gain: The remainder after all deductions.
- Apply the correct CGT rate: Depending on your income tax band.
Example Calculation:
| Description | Amount |
| Sale price | £300,000 |
| Purchase price | £200,000 |
| Solicitor & agent fees | £5,000 |
| Improvement costs | £10,000 |
| Annual allowance | £3,000 |
| Taxable gain | £82,000 |
If you are a higher-rate taxpayer, the CGT would be £82,000 × 24% = £19,680.
What Allowances Can Reduce Your Capital Gains Tax Bill?
Homeowners can reduce their CGT liability by making use of available allowances and reliefs:
- Annual CGT allowance of £3,000 per person (2025–26)
- Combining allowances if property is jointly owned with a spouse or civil partner, giving a joint allowance of £6,000
- Claiming Lettings Relief if part of the home was rented out while you lived there
- Offsetting losses from other asset sales against gains on property
- Deducting qualifying costs associated with buying, selling and improving the property
- Transferring ownership to a spouse in a lower tax bracket before selling to reduce the overall CGT rate applied
Timing also matters; if you are close to the end of the tax year, delaying or bringing forward the sale could allow you to maximise allowances across two tax years.
How Does Selling an Inherited or Gifted Property Affect Capital Gains Tax?
When you inherit property, CGT is calculated from the property’s market value at the date of inheritance.
Any gain made from that value to the selling price is taxable, subject to allowances. Inheritance Tax is dealt with separately and is usually settled by the estate before the property is passed to you.
For gifted property:
- Transfers between spouses or civil partners are exempt from CGT.
- Gifts to other individuals are treated as if you sold the property for its full market value, meaning CGT may be due if it has increased in value.
In certain cases, selling a property that was occupied rent-free by a dependent relative may qualify for an exemption, although strict rules apply.
What Are the Rules for Reporting and Paying Capital Gains Tax to HMRC?
When selling a UK residential property, you must:
- Report the gain to HMRC within 60 days of completion
- Pay any CGT due within the same 60-day period
- Use the online Capital Gains Tax on UK Property account or declare via Self Assessment if required
Missing the deadline can lead to financial penalties and interest on the unpaid amount. Keeping accurate records of purchase documents, improvement receipts and sale details can make reporting easier and help you prove deductible expenses.
Can You Avoid or Reduce Capital Gains Tax When Selling a House?
While you cannot legally avoid CGT if it is due, strategic planning can significantly reduce the amount payable.
Common strategies include:
- Selling in a tax year with lower overall income to stay in the basic rate band
- Transferring ownership or part ownership to a spouse with unused allowance or a lower tax band
- Timing sales to make use of two separate tax years
- Nominating a property as your main residence before selling, where HMRC rules allow
- Claiming all eligible reliefs, including PRR and Lettings Relief
These methods require careful planning and often professional advice to ensure compliance with HMRC rules.
What Are the Most Common Mistakes People Make With Capital Gains Tax on Property?
Property owners often pay more CGT than necessary due to simple oversights. Common mistakes include:
- Missing the 60-day reporting deadline
- Misinterpreting Private Residence Relief rules and assuming full exemption
- Failing to keep proof of allowable expenses such as improvement costs
- Forgetting to offset capital losses from other sales
- Underestimating how gains affect income tax bands, pushing part of the gain into a higher CGT rate
Being proactive and informed can prevent these costly errors and ensure you pay only the CGT legally required.
Conclusion
Whether you have to pay capital gains tax when you sell your house depends largely on the property type, your residency status in it, and whether reliefs apply.
Understanding the rules, using allowances effectively, and planning your sale can help you minimise or avoid CGT liability. For personalised advice, it is wise to consult a qualified tax adviser.
FAQs
What happens if I sell my house at a loss?
If you sell for less than you paid, you can record a capital loss and offset it against future capital gains to reduce your CGT bill.
Is there capital gains tax on property jointly owned?
Yes, but each owner can use their individual annual CGT allowance before tax applies to their share of the gain.
Do I have to pay CGT if I move abroad?
If you sell UK property after moving abroad, CGT may still apply. UK property gains are taxable for non-residents, subject to certain exemptions.
Can you offset capital gains tax with other losses?
Yes. Losses from selling other assets can be offset against property gains, reducing the amount subject to CGT.
Is there CGT on selling property to a family member?
Yes, unless the family member is your spouse or civil partner. Sales to others are treated as market-value transactions for CGT.
How does divorce affect capital gains tax on property?
Transfers between spouses are normally CGT-free, but special rules apply after separation. Timing and agreements are key.
Can renovations reduce my capital gains tax bill?
Yes, if the renovations add value to the property (e.g., building an extension) and are not general maintenance.
