Capital Gains Tax (CGT) is a tax that can catch many property owners and investors off guard. With the annual exemption now at just £3,000 for 2025/26, and rates changing depending on your income, it’s more important than ever to understand when CGT applies and how to manage your liability.
Whether you’re selling a second home, a buy-to-let, or an inherited property, this guide covers everything you need to know about CGT in the UK for the current tax year.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit (‘gain’) you make when you sell or otherwise dispose of an asset that has increased in value. It’s not the sale price that’s taxed, it’s the difference between what you paid and what you gained.
You may need to pay CGT on:
- Buy-to-let and second homes
- Business premises
- Land
- Inherited properties (when sold)
- Shares, funds, and other chargeable assets
Some assets are exempt, such as your main residence (if all conditions are met), ISAs, cars, and personal possessions sold for under £6,000.
Capital Gains Tax: Frequently Asked Questions
When do you pay Capital Gains Tax?
You must pay CGT when:
- You dispose of a chargeable asset (sell, gift, exchange, etc.)
- Your total gains for the tax year exceed the annual exempt amount
- You are a UK resident selling property in the UK or abroad (worldwide assets may apply)
- You’re a non-resident selling UK land or property
CGT does not apply at the point of inheritance. It only becomes due when you sell or otherwise dispose of the inherited asset.
How does the Capital Gains Tax on property work?
CGT on property is calculated based on your gain, which is:
Sale price – (Purchase price + Allowable costs + Improvements)
Allowable deductions include legal fees, estate agent costs, stamp duty, and the costs of structural improvements such as extensions or conversions, although routine maintenance and decoration are not deductible.
CGT typically applies when you sell buy-to-let properties, holiday homes, inherited property, and land or commercial premises.
Main homes are usually exempt under Private Residence Relief (see below), but if you’ve let out part of it or used it for business, partial CGT may apply.
What is the Capital Gains allowance?
The Annual Exempt Amount (AEA) is the tax-free allowance for capital gains. If your total gains in a tax year are below this threshold, you won’t pay CGT.
Important: The AEA cannot be carried forward. Each person gets their allowance. Married couples or civil partners can each claim it on jointly owned assets.
You still need to report your gain if you’re registered for Self Assessment and the total sale proceeds are over £50,000.
How does the Capital Gains Tax affect landlords?
Landlords who sell rental properties may have to pay Capital Gains Tax on the profit they make. This applies to residential buy-to-let properties, flats or HMOs, and inherited homes that have been rented out. From 6 April 2025, the CGT rate is 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers.
These apply after your annual exempt amount is deducted. Your rate depends on your total taxable income plus your gain.
Example:
If your income is £25,000 and your taxable gain is £20,000:
First £12,700 of the gain taxed at 18%
Remaining £7,300 taxed at 24%
What is Capital Gains Tax relief for landlords?
You may be able to reduce your Capital Gains Tax bill by claiming Private Residence Relief if the property was once your main home, using Lettings Relief in certain cases, deducting the costs of buying, selling, and improving the property, or by offsetting any previous capital losses.
Lettings Relief only applies if you lived in the property during the time you owned it and let out part or all of it; it does not apply to periods when the entire property was used as a buy-to-let with no personal residence.
How do you avoid Capital Gains Tax?
Avoiding Capital Gains Tax (CGT) legally involves good planning and using the reliefs and exemptions available. In many cases, you can reduce or even eliminate your CGT liability by meeting specific conditions set by HMRC.
Exemptions to Capital Gains Tax
Some assets and transactions are entirely exempt from CGT. These include transfers to your spouse or civil partner, as long as you’re living together during the tax year, and gifts to UK-registered charities. You may also be exempt if you’re disposing of certain personal possessions or if your gains are within the annual allowance.
Private Residence Relief
You do not pay CGT when selling your home if it has been your only or main residence throughout the time you’ve owned it. To qualify, you must not have let out any part of the property except to a lodger, you must not have used any part of it exclusively for business, the property and its grounds must be under 5,000 square metres, and you must not have bought it solely to make a profit. If all of these apply, your gain is fully exempt.
Lettings Relief
Lettings Relief can reduce your CGT bill if you let out a property that was once your main home. It is only available if you lived in the property while you owned it and let out part or all of it. However, this relief does not apply to properties that were used solely as rental investments without any period of personal residence. The relief is capped and only applies in limited situations.
Inherited property
You do not pay CGT when you inherit a property, but if you later sell it and it is not your main home, you may need to pay CGT on the gain. In this case, the gain is calculated using the property’s market value at the date of the previous owner’s death, not the price they originally paid for it.
Spouse or charity transfers
Transfers of assets to your spouse or civil partner are exempt from CGT, as long as you were living together during the tax year. Similarly, gifts or sales of assets to UK-registered charities are exempt, unless you sell the asset to the charity for more than you paid but less than market value, in which case partial CGT may apply.
Reinvestment scenarios
If you reinvest the proceeds from a property sale into another property, this does not usually exempt you from CGT. However, certain tax reliefs may apply in special cases, such as compulsory purchase or business asset replacement, if the new property is purchased within one year before or two years after the sale, or constructed within three years. These are limited scenarios and do not apply to typical buy-to-let or residential reinvestment.
When do you need to pay your Capital Gains Tax bill?
The deadline to report and pay Capital Gains Tax depends on the type of asset you’ve sold and whether you’re a UK resident. If you sell a UK residential property, you must report and pay any CGT within 60 days of completion. For other assets, you can report through your Self Assessment tax return and pay by 31 January following the end of the tax year.
If you use the Real-Time Capital Gains Tax service, you must report the gain by 31 December and pay by 31 January. HMRC won’t send you a bill; you are responsible for working out, reporting, and paying the tax yourself.
If you are not a UK resident, you must still report any sale of UK property, even if no tax is due.
What is the Capital Gains Tax allowance for 2025/26?
For the 2025/26 tax year, the capital gains tax allowance is £3,000 for individuals and £1,500 for trusts.
This is a continued reduction from £6,000 in 2023/24 and £12,300 in 2022/23.
Need help with selling? We’re here to guide you
With the tax-free allowance now lower and new CGT rates in place for 2025/26, landlords, investors, and property owners need to understand when Capital Gains Tax applies. Knowing what reliefs you can claim, keeping good records, and planning can help you stay compliant and reduce how much tax you pay.
If you’re thinking about selling a property and want to understand how CGT might affect you, speak to your local Martin & Co estate agent. They can guide you through the process and connect you with expert advice if you need it.
Further reading:
Common myths about house-selling
