Capital gains tax property rules affect every UK landlord and property investor who sells a rental property or second home. Whether you're disposing of a single buy-to-let or part of a larger portfolio, understanding how capital gains tax works can save you thousands of pounds.
This guide covers everything you need to know about capital gains tax on property sales, from basic rates to advanced planning strategies.
What is Capital Gains Tax on Property?
Capital gains tax (CGT) is charged on the profit you make when you dispose of a property that isn't your main residence. The tax applies to the gain — the difference between what you paid for the property (plus allowable costs) and what you sell it for.
For example, if you bought a buy-to-let property for £200,000 in 2018 and sell it for £280,000 in 2025, your capital gain is £80,000 (before deducting allowable costs).
Most property disposals are subject to capital gains tax property rules, including:
- Buy-to-let properties
- Second homes and holiday cottages
- Commercial property
- Gifted properties (except to spouses)
- Properties inherited and later sold
Capital Gains Tax Rates on Property 2025/26
CGT rates on property are higher than rates on other assets. For the 2025/26 tax year, the rates are:
- Basic rate taxpayers: 18% on property gains
- Higher and additional rate taxpayers: 28% on property gains
Your CGT rate depends on your total taxable income for the year. If adding the capital gain to your other income pushes you into the higher rate band, you'll pay 18% on the portion within the basic rate and 28% on the remainder.
For example, a landlord with £35,000 salary who makes a £60,000 capital gain would pay 18% on £15,270 (remaining basic rate band) and 28% on £44,730.
Annual Exempt Amount
Each individual has an annual exempt amount (annual allowance) that reduces their taxable capital gains. For 2025/26, this is £3,000 per person.
Married couples and civil partners can each use their annual exempt amount, potentially sheltering £6,000 of gains from tax. This makes joint ownership of investment properties attractive for CGT planning.
Calculating Capital Gains Tax on Property
The basic calculation follows this structure:
Sale proceeds
Less: Original purchase price
Less: Allowable costs
Less: Annual exempt amount
= Taxable capital gain
Allowable Costs
You can deduct various costs from your capital gain:
- Purchase costs: Solicitor fees, stamp duty, survey costs
- Improvement costs: Extensions, conversions, new kitchens/bathrooms
- Sale costs: Estate agent fees, solicitor fees, marketing costs
Regular maintenance and repairs aren't allowable — only costs that enhance the property's value or were necessary for the sale.
Principal Private Residence Relief
If you lived in the property as your main residence at any point, you might qualify for Principal Private Residence (PPR) relief. This exempts part of the gain from tax.
The relief covers periods when the property was your main home, plus the final nine months of ownership (regardless of use). Additional periods may qualify if you were absent for specific reasons like work relocation.
When to Pay Capital Gains Tax Property
Property CGT payment deadlines are strict:
- Disposal notification: Within 30 days of completion
- Tax payment: Within 30 days of completion (not 31 January)
- Self Assessment: Confirm the figures by 31 January following the tax year
This 30-day rule applies to UK residents disposing of UK residential property. Missing these deadlines triggers automatic penalties.
CGT Planning Strategies
Timing Disposals
Consider spreading property sales across tax years to use multiple annual exempt amounts. If you have properties worth £150,000 profit, selling three in one year wastes two annual allowances.
Spouse/Civil Partner Transfers
Transferring property to a spouse before sale can utilise their lower tax rate or unused annual exempt amount. These transfers are CGT-neutral between spouses.
Business Asset Disposal Relief
Furnished holiday lettings that qualify as a business might be eligible for Business Asset Disposal Relief, reducing CGT to 10% on qualifying gains up to £1 million lifetime limit.
Property Companies and CGT
Holding properties through a company changes the CGT position significantly. Companies pay corporation tax on capital gains at normal corporation tax rates (19-25% for 2025/26), not CGT rates.
However, extracting proceeds from the company creates additional tax charges. Many landlords considering incorporation focus on income tax savings but overlook these CGT implications.
Record Keeping Requirements
HMRC expects comprehensive records for capital gains tax property calculations:
- Purchase documents and completion statements
- Receipts for all allowable costs
- Sale documents and estate agent correspondence
- Evidence of any periods of main residence
- Professional valuations if properties were inherited or gifted
Keep these records for at least five years after the 31 January filing deadline following the disposal.
Common CGT Mistakes
Property investors frequently make these costly errors:
- Missing the 30-day deadline: Automatic £100 penalty minimum
- Not claiming all allowable costs: Increases taxable gains unnecessarily
- Incorrect PPR relief calculations: Particularly for former main residences
- Forgetting spouse transfers: Missing opportunities for tax savings
- Poor timing: Not considering annual exempt amounts across tax years
Getting Professional Advice
Capital gains tax property rules are complex, and the stakes are high given the 28% rate for higher-rate taxpayers. Professional advice becomes particularly valuable for:
- Large property portfolios with multiple disposals
- Properties with mixed-use periods (main residence and rental)
- Inherited properties requiring valuation
- Cross-border situations involving non-UK residents
The cost of professional advice is usually modest compared to potential CGT savings. If you're planning property disposals or need help with CGT calculations, consider speaking to a specialist who understands the intricacies of capital gains tax property rules.