Capital Gains Tax on Property UK: Rates, Allowances, and Worked Examples

2026-07-16

Capital gains tax on property UK — rates, allowances, and worked examples

Capital Gains Tax is the tax you pay when you sell an asset for more than you paid for it. For property investors, it's the bill that arrives at the end — and it's often larger than expected because most investors don't think about it until they're selling.

Understanding CGT before you sell (ideally before you buy) means you can structure your investments to minimise the liability legally. This guide covers the current rates, how to calculate your gain, what deductions you can claim, and the strategies that reduce the bill.

The 2025/26 CGT Rates for Residential Property

Residential property CGT rates are higher than rates on other assets:

:::stats 18% | Basic Rate (income + gain within basic band) 24% | Higher Rate (income + gain above basic band) £3,000 | Annual CGT Allowance (2025/26) :::

These rates apply to investment property. Your main residence is exempt from CGT under Private Residence Relief (PRR) — but only if it's genuinely been your home throughout ownership.

How Your Tax Band Affects CGT

Your capital gain stacks on TOP of your income. The rate you pay depends on which band the gain falls into:

Example: You earn £40,000 salary. The basic rate band ends at £50,270. You have £10,270 of basic rate headroom. On a £50,000 property gain:

If your salary was £55,000 (already above the basic band), the entire gain (after allowance) would be taxed at 24%:

The difference between being basic-rate and higher-rate on a £50,000 gain is over £600. It matters.

How to Calculate Your Taxable Gain

Taxable Gain = Sale Price - Acquisition Cost - Improvement Costs - Selling Costs - CGT Allowance

Acquisition Cost (What You Paid)

This isn't just the purchase price. It includes all costs of acquiring the property:

Item Included?
Purchase price Yes
Stamp duty (SDLT) Yes
Legal fees (purchase) Yes
Survey cost Yes
Broker fee Yes
Total = your base cost

Improvement Costs (Capital Expenditure)

Costs that enhance the property are deductible. Costs that maintain it are not.

Deductible (capital improvements):

NOT deductible (maintenance/repairs):

The line between "improvement" and "repair" is fuzzy. HMRC's test: does the work put the property into a better state than when you acquired it, or does it restore it to its original state? Better = capital improvement (deductible from gain). Restore = maintenance (deductible from rental income, not from the gain).

[!tip] Keep every invoice HMRC can ask for evidence of deductible costs going back to the date of purchase. If you can't prove the spend, you can't claim the deduction. Keep invoices, receipts, and bank statements for every capital improvement, filed by property.

Selling Costs

All costs of selling are deductible:

Item Typical Cost
Estate agent fee (1-1.5% + VAT) £2,400-£5,400 on a £200k sale
Legal fees (sale) £1,000-£1,500
EPC (if needed for sale) £60-£120

Worked Examples

Example 1: Simple BTL Sale

Bought: 2020 for £150,000 + £6,000 SDLT + £1,500 legal = £157,500 base cost

Improvements: New kitchen (£8,000), new bathroom (£5,000) = £13,000

Sold: 2026 for £210,000 - £3,000 agent - £1,200 legal = £205,800 net proceeds

Line Amount
Net proceeds £205,800
Less base cost -£157,500
Less improvements -£13,000
Gain before allowance £35,300
Less CGT allowance -£3,000
Taxable gain £32,300

If higher-rate taxpayer: £32,300 x 24% = £7,752 CGT

Net profit after tax: £205,800 - £157,500 - £13,000 - £7,752 = £27,548

Example 2: Property Flip (Short Hold)

Bought: January 2026 at auction for £120,000 + £6,000 SDLT + £1,500 legal + £6,000 bridging costs = £133,500 base cost

Renovation: £30,000

Sold: July 2026 for £185,000 - £2,775 agent - £1,200 legal = £181,025 net proceeds

Line Amount
Net proceeds £181,025
Less base cost -£133,500
Less renovation -£30,000
Gain £17,525
Less CGT allowance -£3,000
Taxable gain £14,525

If higher-rate: £14,525 x 24% = £3,486 CGT

Net profit: £17,525 - £3,486 = £14,039

That's £14,039 net profit on a 6-month flip that required roughly £56,000 of capital (deposit + reno costs before bridge drawdowns). Not bad, but also not the £65,000 "gross profit" that looked so attractive before costs and tax.

[!warning] HMRC can treat regular flipping as trading If you flip multiple properties frequently, HMRC may classify you as a property trader. Trading profits are taxed as income (20-45%) rather than capital gains (18-24%), and you lose the CGT annual allowance. If you're doing more than 2-3 flips per year, get specialist tax advice.

:::tool property-gains-tax Calculate Your CGT Liability :::

Strategies to Reduce CGT

1. Use Both Partners' Allowances

If you own jointly with a spouse or civil partner, you each get a £3,000 CGT allowance. That's £6,000 tax-free on a joint disposal. On a £50,000 gain at higher rate, this saves £1,440.

2. Time the Sale to Manage Your Income

Your CGT rate depends on your total income. If you know your income will be lower in a particular tax year (career break, sabbatical, gap between jobs), selling in that year can drop some or all of the gain into the basic-rate band.

3. Maximise Deductible Costs

Every capital improvement you can evidence reduces the gain. That £8,000 kitchen and £5,000 bathroom you installed save you £3,120 in CGT at 24%. This is why keeping invoices matters.

4. Consider Pension Contributions

Pension contributions reduce your taxable income. If contributing enough to pull your income below the basic-rate threshold, some of the property gain falls into the 18% band instead of 24%.

5. Hold in a Limited Company

Companies don't pay CGT — they pay corporation tax on gains (currently 25%). For gains where you're a higher-rate taxpayer, the company rate is similar. But the company also benefits from indexation-like allowances through the Substantial Shareholding Exemption in certain structures. This is complex territory — accountant required.

6. Don't Sell

The most effective CGT strategy is never triggering it. Hold properties, refinance to access equity, and let the gains compound untaxed. You only pay CGT when you sell. If you never sell, CGT never crystallises. When you die, the property passes at market value (no CGT on death), though inheritance tax may apply.

Reporting and Payment

Since April 2020, you must report a UK residential property disposal to HMRC within 60 days of completion and pay the estimated CGT within the same period. This is separate from your annual self-assessment return.

Late reporting incurs penalties:

The 60-day rule catches many investors who aren't prepared. Organise your cost records before completion so you can file promptly.

Run Your Numbers

The Property Gains Tax calculator models your exact CGT liability — including income stacking, the annual allowance, joint ownership, and deductible costs. Run it before you agree a sale price so you know your net proceeds, not just the gross.

:::tool property-gains-tax Calculate Your CGT Now :::

For understanding how CGT fits into your broader tax position, see the Rental Income Tax Guide.

Summary

Tax rates and allowances are correct for the 2025/26 tax year. CGT rules can change at fiscal events. Always consult a qualified tax professional before making disposal decisions.