Capital Gains Tax on Property UK 2025–26: Rates, Allowances, Reliefs & How to Reduce Your Bill

Whether you’re selling a buy-to-let, a second home, or gifting property to a family member, understanding capital gains tax on property in the UK is essential. With HMRC tightening reporting deadlines and CGT rates having changed in recent years, getting this wrong can cost you thousands.

This authoritative guide covers everything you need to know about capital gains tax property rules for 2025–26 — from current rates and allowances to reliefs, exemptions, and how to reduce your bill legally.

What Is Capital Gains Tax on Property?

Capital gains tax (CGT) on property is a tax charged on the profit you make when you sell or dispose of a property that has increased in value. You are taxed on the gain — not the total sale proceeds — so if you bought a property for £200,000 and sold it for £280,000, your gain is £80,000 (before allowances and costs).

CGT on property applies to:

• Buy-to-let properties
• Second homes and holiday homes
• Inherited properties (if later sold at a profit)
• Land and commercial property
• Gifted property (deemed as sold at market value)
• Overseas property owned by UK residents

It does not typically apply to your main home (subject to Private Residence Relief — see below).

Capital Gains Tax Property Rates 2025–26

The capital gains tax property rates for residential property remain higher than those for other assets:

Important: The Autumn 2024 Budget raised CGT rates for non-residential assets to align with residential property rates, but residential property CGT remains a distinct category with different reporting rules and specific reliefs.

How Your Tax Band Is Determined for CGT

Your CGT rate depends on your total taxable income in the tax year, including the gain itself. If part of your gain falls within the basic rate band (income up to £50,270 for 2025–26), that portion is taxed at 18%. Any amount above is taxed at 24%.

Example:

• Total income: £35,000
• Basic rate band remaining: £50,270 − £35,000 = £15,270
• Gain after Annual Exempt Amount: £50,000
• First £15,270 taxed at 18% = £2,749
• Remaining £34,730 taxed at 24% = £8,335
• Total CGT: £11,084

Annual Exempt Amount (AEA) 2025–26

Every UK resident individual has an Annual Exempt Amount — a tax-free allowance for capital gains. For 2025–26:

• Individuals: £3,000
• Trustees of most trusts: £1,500

This is significantly lower than the £12,300 allowance available in 2022–23. The sharp reduction since April 2023 means more property sellers now face a CGT liability where previously they would have paid nothing.

Couples tip: If you own property jointly with a spouse or civil partner, each of you has a separate Annual Exempt Amount — potentially sheltering £6,000 of gain between you tax-free.

Key Reliefs and Exemptions for Capital Gains Tax on Property

1. Private Residence Relief (PRR)

Private Residence Relief is the most significant exemption in capital gains tax property rules. If the property has been your only or main home throughout your ownership, the entire gain is exempt.

PRR is calculated proportionally if you:

• Let out part of your home
• Used part exclusively for business
• Did not live there for the entire period of ownership
• Have a garden larger than 0.5 hectares (approx 1.24 acres)

The final 9 months of ownership always qualify for PRR, even if you’ve moved out, provided the property was your main residence at some point.

2. Letting Relief

Letting Relief is only available if you lived in the property at the same time as the tenant (shared occupancy). The maximum relief is the lower of:

• £40,000
• The amount of PRR you are entitled to
• The gain attributable to the letting period

3. Rollover Relief

If you use the proceeds from a commercial property sale to reinvest in another qualifying business asset, you may defer CGT through Rollover Relief.

4. Gift Hold-Over Relief

When gifting a business asset, Hold-Over Relief lets you defer the CGT until the recipient eventually disposes of the asset. This applies more narrowly to residential property — mainly through certain trust structures.

5. Capital Losses

Capital losses from other disposals in the same tax year (or carried forward from previous years) can be offset against your capital gains tax property liability, reducing the taxable gain pound for pound.

Allowable Deductions: Reducing Your CGT Bill Legitimately

You can deduct legitimate costs from your gain before calculating tax. Allowable deductions include:

• Acquisition costs — purchase price, Stamp Duty Land Tax (SDLT), legal fees, surveyor fees
• Improvement costs — extensions, loft conversions, structural work (not maintenance or repairs)
• Disposal costs — estate agent fees, legal fees, Energy Performance Certificate (EPC) costs

Note: Mortgage interest, routine repairs, and redecoration cannot be deducted from your capital gain, although they may be allowable against rental income for landlords.

Reporting and Paying Capital Gains Tax on Property

The 60-Day Reporting Rule

Since October 2021, UK residents must report and pay any CGT due on residential property within 60 days of completion. This is done via HMRC’s online UK Property Account — a separate process from the annual Self Assessment tax return.

Failure to report within 60 days triggers automatic penalties:

• Up to 6 months late: £100 fixed penalty
• 6–12 months late: A further £300 or 5% of the tax due (whichever is greater)
• Over 12 months late: An additional £300 or 5% of tax due, plus potential surcharges

Non-UK Residents

Non-residents selling UK property must always report the disposal to HMRC within 60 days — even if no CGT is owed and even if they make a loss.

Self Assessment

Even after making an in-year payment through the UK Property Account, you must still declare the gain in your Self Assessment return for the relevant tax year, where the final liability is reconciled.

Capital Gains Tax on Inherited Property

Inheriting property does not itself trigger a CGT liability — that is a matter for Inheritance Tax (IHT). However, capital gains tax on inherited property arises when you later sell it.

Your base cost for CGT purposes is the probate value — the market value at the date of the deceased’s death. If you sell the property years later at a higher price, CGT is payable on the difference.

Example:

• Probate value (2019): £250,000
• Sale price (2025): £340,000
• Gross gain: £90,000
• Less Annual Exempt Amount: £3,000
• Taxable gain: £87,000

Capital Gains Tax on Buy-to-Let Property

Buy-to-let landlords are among the most directly affected by capital gains tax property legislation. Key considerations include:

• No Private Residence Relief applies (unless you previously lived there)
• CGT is payable on all gains above the £3,000 Annual Exempt Amount
• Capital improvements during ownership are fully deductible
• Losses from other CGT-liable assets can offset property gains
• Transferring a property portfolio into a limited company triggers CGT as a deemed disposal at market value

Landlords Incorporating: A CGT Trigger to Plan Around

Many landlords have explored moving their portfolio into a limited company to benefit from lower Corporation Tax rates on profits. However, the transfer is treated as a disposal for CGT purposes unless Incorporation Relief applies. This relief requires the property business to be genuinely commercial in nature — not simply a passive investment holding.

Gifting Property and Capital Gains Tax

Gifting property to children or other family members is treated as a disposal at market value for CGT purposes, meaning tax may arise even though no money changes hands.

• Gift of a second home worth £350,000 bought for £220,000 = gain of £130,000
• The donor pays CGT on this gain based on current rates

The recipient’s base cost for future capital gains tax property calculations is the market value at the date of the gift.

Transfers between spouses and civil partners are always exempt from CGT — they occur on a “no gain/no loss” basis.

Common Mistakes to Avoid

1. Missing the 60-day reporting deadline — The most common and easily avoidable penalty trigger.
2. Failing to claim all allowable costs — Many sellers overlook SDLT, legal fees at purchase, and improvement expenditure.
3. Assuming PRR eliminates the entire gain — Part-letting or mixed business use reduces the relief proportionally.
4. Not using a spouse’s Annual Exempt Amount — A pre-sale ownership transfer can reduce your combined CGT bill.
5. Ignoring capital losses — Losses from shares or other assets from previous years can be applied.
6. Confusing repairs with improvements — Only capital improvements reduce your CGT-liable gain.

Key Takeaways: Capital Gains Tax Property 2025–26

• CGT rates on residential property are 18% (basic rate) and 24% (higher rate) in 2025–26
• The Annual Exempt Amount is just £3,000 per individual
• Your main home is generally exempt via Private Residence Relief
• The 60-day reporting deadline applies to all UK residential property disposals — missing it incurs automatic penalties
• Allowable costs (purchase fees, improvements, disposal costs) reduce your taxable gain
• Married couples can combine their Annual Exempt Amounts by owning jointly
• Inherited property uses the probate value as the CGT base cost
• Gifting property is treated as a disposal at market value — CGT is due from the donor
• Capital losses from other assets can be offset against property gains in the same year

Frequently Asked Questions: Capital Gains Tax Property

How much capital gains tax do I pay on property in the UK in 2025–26?

The CGT rate on residential property in 2025–26 is 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. The first £3,000 of gains in any tax year is covered by the Annual Exempt Amount and is not taxed.

Do I pay capital gains tax when I sell my main home?

Generally, no. Your main home is exempt from capital gains tax on property through Private Residence Relief, provided it was your only or main residence throughout ownership. Exceptions apply if part of it was let out, used exclusively for business, or if the garden exceeds 0.5 hectares.

What is the CGT Annual Exempt Amount for 2025–26?

The Annual Exempt Amount for individuals is £3,000 for the 2025–26 tax year — significantly lower than the £12,300 limit that applied in 2022–23.

When do I have to report and pay capital gains tax on property?

You must report and pay CGT on UK residential property within 60 days of completion using HMRC’s UK Property Account. You must also include the disposal in your Self Assessment return for the relevant tax year.

Can I reduce my capital gains tax on property through improvements?

Yes. The cost of capital improvements — extensions, conversions, structural alterations — can be deducted from your gain, reducing your capital gains tax property liability. Routine repairs and maintenance do not qualify.

Do I pay capital gains tax on inherited property?

Inheriting property is not itself subject to CGT. However, when you sell an inherited property, CGT is calculated on the difference between the sale price and the probate value at the date of death.

How can I legally reduce capital gains tax on a second property?

Legitimate strategies to reduce capital gains tax property liability include: claiming Private Residence Relief if applicable, transferring partial ownership to a spouse to use their AEA, offsetting capital losses from other assets, deducting all allowable purchase and improvement costs, and timing your disposal across two tax years where possible. Always seek qualified tax advice before acting.

Does capital gains tax apply to overseas property owned by UK residents?

Yes. UK residents are subject to CGT on gains from overseas property at the same rates. However, double tax treaties may reduce the liability where foreign tax has already been paid on the same gain.

Conclusion: Your Next Steps on Capital Gains Tax Property

Understanding capital gains tax on property in the UK can make a meaningful difference to your net proceeds when selling, gifting, or transferring real estate. The rules are detailed, the deadlines are firm, and the penalties for non-compliance are real — but so are the legal opportunities to reduce what you owe.

With the Annual Exempt Amount reduced to just £3,000 and residential property CGT rates at 18%–24%, proactive planning before completion — not after — is what separates a well-managed disposal from an expensive oversight.

Recommended next steps:

1. Calculate your estimated gain (sale price minus base cost minus all allowable deductions)
2. Identify which reliefs apply — particularly Private Residence Relief and capital loss offsets
3. Report and pay within 60 days of completion via HMRC’s UK Property Account
4. Include the disposal in your annual Self Assessment return
5. Consult a qualified chartered tax adviser for personalised guidance on your situation

This article is for general informational purposes only and does not constitute tax or financial advice. UK tax legislation is subject to change. Always consult a qualified professional — such as a Chartered Tax Adviser (CTA) or ICAEW member — for advice specific to your personal circumstances.