Capital Gains Tax (CGT) on property is one of the largest unexpected tax bills many UK individuals face. Whether you are selling a buy-to-let, a second home, inherited property, or commercial premises, understanding CGT before you complete the sale gives you time to plan and potentially save thousands of pounds.
This guide explains exactly how CGT on property works in 2026/27, what rates apply, what reliefs are available, and what steps you can take to reduce your liability legally.
What Is Capital Gains Tax on Property?
Capital Gains Tax is charged on the profit you make when you sell (or otherwise dispose of) an asset that has increased in value. For property, the gain is the difference between what you paid for it (plus certain allowable costs) and what you sold it for.
CGT is not charged on your main home in most circumstances, Principal Private Residence (PPR) relief exempts it. But rental properties, second homes, inherited properties, and commercial premises are typically chargeable.
CGT Rates on Property in 2026/27
Residential property is taxed at higher CGT rates than other assets. The rates from 6 April 2024 onwards are:
| Your total taxable income | CGT rate on residential property |
|---|---|
| Basic rate taxpayer (income under £50,270) | 18% |
| Higher or additional rate taxpayer | 24% |
For commercial property and other assets, the rates are 10% and 20% respectively. The property gain is added on top of your other income to determine which band applies, so if you earn £40,000 and make a £30,000 property gain, the first £10,270 of the gain falls in the basic rate band (18%) and the remaining £19,730 is taxed at 24%.
The Annual Exempt Amount
Every individual has an annual CGT exemption, gains up to this amount each tax year are completely free of CGT. In 2026/27, the annual exempt amount is £3,000. This was significantly reduced from £12,300 in 2022/23, meaning many more people now pay CGT on relatively modest gains.
If you are married or in a civil partnership, each partner has their own £3,000 exemption. Transferring assets between spouses before sale (which is done at no gain/no loss) can effectively double the exemption used against the gain.
How to Calculate Your Capital Gain
The basic calculation is:
Gain = Sale proceeds minus Purchase price minus Allowable costs
Allowable costs you can deduct include:
- The original purchase price
- Stamp Duty Land Tax paid on purchase
- Legal and conveyancing fees on purchase and sale
- Estate agent fees on sale
- Capital improvement costs, work that added value (a new extension, a loft conversion, a new kitchen that upgraded the property significantly). Routine repairs and maintenance are not deductible for CGT.
The resulting gain (after deducting your £3,000 annual exemption) is the amount subject to CGT.
Principal Private Residence Relief, Your Main Home
If the property was your main residence for the entire period of ownership, the full gain is exempt from CGT under PPR relief. No CGT, no reporting required.
Where you lived in the property for part of the ownership period (common when a home becomes a rental property or vice versa), the gain is apportioned. The period of actual residence is exempt. The final 9 months of ownership are always treated as a period of residence regardless of whether you were living there, this is a valuable relief for people who have moved out before selling.
Letting Relief
Letting relief used to provide up to £40,000 of CGT relief for properties that had been let. Since April 2020, it only applies where the owner was living in the property at the same time as the tenant, which in practice means it is now very rarely applicable.
30-Day Reporting and Payment Deadline
Since April 2020, if you sell a UK residential property and CGT is due, you must report the gain and pay the tax to HMRC within 60 days of completion. This is done through HMRC's UK Property Reporting Service (a separate system from Self Assessment).
You still need to include the gain in your Self Assessment return for the year, but the payment must be made within 60 days. Missing this deadline results in interest and a late payment penalty.
If no CGT is due (because the gain is covered by the annual exemption or PPR relief), no 60-day report is required.
Strategies to Reduce Capital Gains Tax on Property
Use your annual exemption: If you are planning multiple disposals, spreading them across different tax years uses the £3,000 exemption in each year rather than one.
Transfer to spouse before sale: A no gain/no loss transfer to a spouse before sale means both annual exemptions are used and both basic rate bands (if applicable) are available, potentially saving thousands.
Pension contributions: Making a pension contribution in the year of sale reduces your adjusted net income, potentially keeping more of the gain within the basic rate band at 18% rather than 24%.
Maximise allowable costs: Many people underclaim improvement costs. If you have receipts for capital works carried out over the ownership period, all of these reduce the chargeable gain.
Gift Aid donations: Like pension contributions, large Gift Aid donations extend the basic rate band, potentially reducing the rate applied to some of the gain.
Client A sold a buy-to-let flat in Harrow in March 2026. She had purchased it for £185,000 in 2011 and sold for £340,000. Her allowable costs included £2,800 in purchase legal fees, £1,200 SDLT, a £22,000 loft conversion carried out in 2018, and £4,500 in sale agent and legal fees. Total allowable costs: £30,500. Net gain: £124,500. After the £3,000 annual exemption: £121,500 chargeable.
Her other income was £38,000. We calculated that the first £12,270 of the gain fell in her basic rate band at 18% (£2,209 tax), and £109,230 was taxed at 24% (£26,215 tax). Total CGT: £28,424, paid within 60 days of completion.
Had she transferred a half share to her husband before sale, his £3,000 exemption and basic rate band would have saved approximately £4,800 in CGT, a planning point she raised too late.
Frequently Asked Questions
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