When Capital Gains Tax applies
Capital Gains Tax is a tax on the profit, or gain, when you sell something that has gone up in value. For property, it usually applies to buy-to-lets, second homes, holiday lets, inherited homes you don't live in, and land. It doesn't usually apply to your only or main home, thanks to Private Residence Relief, although there are exceptions such as a very large garden or a home partly used for business.
Rates and allowance for 2026/27
| 2026/27 | |
|---|---|
| Annual exempt amount (individuals) | £3,000 |
| Rate on gains within your basic-rate band | 18% |
| Rate on gains above it | 24% |
The rate depends on your total taxable income plus the gain. Gains that fall within any unused basic-rate band are taxed at 18%; the rest at 24%. Trustees and personal representatives have their own rates and allowance.
Working out the gain
In simple terms, the gain is the sale price minus what you paid and certain costs. Costs you can normally deduct include:
- Stamp Duty, legal fees and survey fees when you bought.
- Estate agent and legal fees when you sell.
- The cost of improvements that added value, such as an extension (not routine repairs or maintenance).
If you inherited the property, the starting point is its value at the date of death, not what the original owner paid.
The 60-day deadline
If you're a UK resident and sell a UK residential property with Capital Gains Tax to pay, you normally need to report the sale and pay the tax within 60 days of completion, using a Capital Gains Tax on UK property account. Non-residents must report all sales of UK property or land, even if there's no tax to pay.
Source: Report and pay Capital Gains Tax on UK property (GOV.UK)
Sixty days goes quickly. Ask your accountant to work out the likely tax before you exchange, so you know your net proceeds and can set the money aside.
Things that can reduce the bill
- Using both allowances if the property is jointly owned, as each owner has their own.
- Timing a sale in a tax year when your income is lower.
- Losses on other assets, which can sometimes be set against the gain.
- Private Residence Relief for any period the property was genuinely your main home.
These depend on your circumstances and the rules change, so take professional advice.
Selling a rental with tenants in place
The tax works the same whether you sell with vacant possession or with tenants in situ. What changes is the time and cost of getting there. See selling a tenanted property and the Renters' Rights Act and selling your rental.
A simple example
An illustration with made-up round numbers, ignoring other income and reliefs, for the 2026/27 tax year:
| Step | Illustration |
|---|---|
| Sale price | £320,000 |
| Less: purchase price | £220,000 |
| Less: buying and selling costs, and an extension | £25,000 |
| Gain | £75,000 |
| Less: annual exempt amount | £3,000 |
| Taxable gain | £72,000 |
| Tax at 24% (if all above the basic-rate band) | £17,280 |
In practice the split between 18% and 24% depends on your income in the year, and joint owners each have their own allowance. Your accountant will do the real calculation.
Homes with large gardens
Private Residence Relief normally covers your main home and its grounds. GOV.UK says the relief applies in full where the grounds, including buildings, are less than 5,000 square metres in total. If you sell part of a larger garden separately, or your grounds are bigger than that, some tax may be due. This matters if you're thinking of selling part of your garden.
Inherited property
If you inherit a property and later sell it, the gain is usually measured from its value at the date of death, not what the person who died paid for it. If the estate's executors sell it instead, the gain is the estate's and different rates and allowances apply. HMRC's helpsheet for personal representatives explains how this works.
Source: Capital Gains Tax when someone dies, helpsheet HS282 (HMRC)
Records to keep
- Completion statements from when you bought and sold.
- Invoices for improvements, such as extensions or new bathrooms (not routine repairs).
- Legal, agent and survey fees for both transactions.
- Dates you lived in the property, if it was ever your main home.
- Any valuations, especially for inherited property.
Good records can reduce the tax you pay and make the 60-day report much quicker to complete.
Source: Report and pay Capital Gains Tax on UK property (GOV.UK)
When you used to live in the property
If a rental or second home was your main home for part of the time you owned it, Private Residence Relief may cover part of the gain. The rules on how much relief applies, and for which periods, are detailed, so it's worth giving your accountant the exact dates you lived there, any time it was let, and any periods away. Getting this right can reduce the tax significantly.
What to do next
If you're selling a rental, second home or inherited property in Dorset or Hampshire, we can give you a firm cash price so your accountant can work out the tax on a real figure. See our landlords page.
