With this in mind, it\u2019s important for landlords to understand how capital gains tax on UK property works and when they need to pay it.<\/p>\n\n\n\n
Read our guide to landlord capital gains tax for information on:<\/p>\n\n\n\n
- \n
- when landlords have to pay capital gains tax<\/a><\/li>\n\n\n\n
- the capital gains tax allowance for landlords<\/a><\/li>\n\n\n\n
- the capital gains tax rates for selling property<\/a><\/li>\n\n\n\n
- how to work out capital gains tax on property<\/a><\/li>\n\n\n\n
- how to pay capital gains tax as a landlord<\/a><\/li>\n\n\n\n
- penalties for failing to pay capital gains tax<\/a><\/li>\n\n\n\n
- capital gains tax \u2013 landlord FAQs<\/a><\/li>\n<\/ul>\n\n\n\n
What is capital gains tax on property?<\/h2>\n\n\n\n
Capital gains tax applies when you dispose of assets, such as a property.<\/p>\n\n\n\n
You don\u2019t pay capital gains tax when you sell your main home, unless you\u2019ve rented it out or used it for business.<\/p>\n\n\n\n
How much you\u2019ll pay depends on:<\/p>\n\n\n\n
- \n
- how long (if at all) the property was your main home<\/li>\n\n\n\n
- your income tax band<\/li>\n\n\n\n
- the amount of profit you make on the property<\/li>\n<\/ul>\n\n\n\n\n
When do you pay capital gains tax on property?<\/strong><\/h3>\n\n\n\n
Capital gains tax mainly applies to landlords who invest in property and let it to tenants, before eventually selling.<\/p>\n\n\n\n
CGT is due within 60 days of the property sale completing.<\/p>\n<\/div>\n\n\n\n
What is the capital gains tax allowance on property?<\/strong><\/h2>\n\n\n\n
The capital gains tax allowance of \u00a33,000 is the maximum amount of profit you can earn from selling your property without having to pay tax. To put it another way \u2013 you\u2019ll pay tax on profits that exceed your allowance.<\/p>\n\n\n\n
You don\u2019t need to pay capital gains tax if your total gains fall within your allowance. If your gains are more than \u00a33,000, you pay tax on the difference.<\/p>\n\n\n\n
In recent years, the tax-free CGT allowance<\/a> has been gradually lowered from \u00a312,300 to \u00a33,000. A lower tax-free allowance means landlords will have to pay more capital gains tax when they sell.<\/p>\n\n\n\n
The government estimates that the allowance reduction from \u00a312,300 to \u00a33,000 will mean 260,000 taxpayers will be brought into the scope of CGT<\/a> for the first time, many of whom could be landlords.<\/p>\n\n\n\n
Latest tax rates \u2013 how much is capital gains tax on property?<\/h2>\n\n\n\n
The rate of capital gains tax you pay when you sell a property depends on your tax band.<\/p>\n\n\n\n
If you\u2019re a basic rate taxpayer, you pay CGT at 18 per cent. If you\u2019re a higher or additional rate taxpayer, you pay the higher capital gains tax rate of 24 per cent.<\/p>\n\n\n\n
It\u2019s important to note that basic rate taxpayers have to work out whether their gains get pushed above the basic tax band.<\/p>\n\n\n\n
\nWork out your capital gains tax by:<\/strong><\/h4>\n\n\n\n
- \n
- calculating your total taxable income, applying your income tax allowance<\/a> and any reliefs<\/li>\n\n\n\n
- adding your total gains (minus your capital gains tax allowance) to your total income<\/li>\n\n\n\n
- if the total is within the basic income tax band, you pay 18 per cent<\/li>\n\n\n\n
- you pay 24 per cent on any gains above the basic tax band<\/li>\n<\/ul>\n<\/div>\n\n\n\n
How to work out capital gains tax in 3 steps<\/h2>\n\n\n\n
Here\u2019s the three steps you\u2019ll need to follow to work out capital gains tax on rental property:<\/p>\n\n\n\n
- \n
- Calculate your gain: <\/strong>the difference between how much you paid for the property and how much you sold it for. You might have to use the property\u2019s market value in some scenarios, for example if it was a gift, you sold it for less than it\u2019s worth to help the buyer, or you inherited it.<\/li>\n\n\n\n
- Deduct costs:<\/strong> subtract certain costs related to selling or improving the property from your gain. These can include estate agent fees, as well as renovations like extensions.<\/li>\n\n\n\n
- Consider tax reliefs:<\/strong> if the property was a business asset, some business tax reliefs<\/a> may apply. Otherwise, you could get Private Residence Relief<\/a> if the property was your main home, or a dependent relative lived in the property.<\/li>\n<\/ul>\n\n\n\n
\n\n<\/span>![\"\"](\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/11\/Circles-01.png\")
\nselling price – original purchase price – allowable costs
= overall gain<\/strong><\/p>\n<\/div><\/div>\n<\/div>\n\n\n\n\n![\"\"](\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/11\/Circles-02.png\")
<\/span>\noverall gain – \u00a33,000 CGT allowance
= capital gains tax owed<\/strong><\/p>\n<\/div><\/div>\n<\/div>\n<\/div>\n\n\n\n\n<\/div>\n\n\n\n\nAllowable deductions for capital gains tax<\/h3>\n\n\n\n
The allowable expenses for capital gains tax on rental property are broken down into three categories:<\/p>\n\n\n\n
- \n
- Sale costs<\/strong> \u2013 which can include legal fees and estate agents\u2019 fees<\/li>\n\n\n\n
- Acquisition costs<\/strong> \u2013 which can include solicitor\u2019s fees and stamp duty<\/a><\/li>\n\n\n\n
- Improvement costs<\/strong> \u2013 which can include the cost of an extension<\/a>, but not maintenance costs like decorating <\/li>\n<\/ol>\n<\/div>\n\n\n\n
Capital gains tax example \u2013 basic rate taxpayer<\/h3>\n\n\n\n
You sold an investment property in September 2024 for \u00a3250,000, after originally buying it for \u00a3185,000.<\/p>\n\n\n\n
Your total costs when buying, selling, and improving the property add up to \u00a310,500.<\/p>\n\n\n\n
Your selling profit of \u00a365,000 minus costs leaves you with a total gain of \u00a354,500.<\/p>\n\n\n\n
Your total gain minus your tax-free capital gains tax allowance of \u00a33,000 leaves you with a taxable gain of \u00a351,500.<\/p>\n\n\n\n
Your annual income is \u00a338,000, which means you pay the basic rate of income tax. <\/p>\n\n\n\n
As a result, you pay \u00a32,209 at 18 per cent tax on \u00a312,270 of your taxable gain that falls within the basic income tax rate, plus \u00a39,415 at 24 per cent on the remaining \u00a339,230 that falls within the higher income tax rate. <\/p>\n\n\n\n
This leaves you with a final CGT bill of \u00a311,624.<\/p>\n\n\n\n
Capital gains tax example \u2013 higher or additional rate taxpayer<\/h3>\n\n\n\n
You sold an investment property in September 2024 for \u00a3525,000, after originally buying it for \u00a3288,000.<\/p>\n\n\n\n
Your total costs when buying, selling, and improving the property add up to \u00a320,000.<\/p>\n\n\n\n
Your selling profit of \u00a3237,000 minus costs leaves you with a total gain of \u00a3217,000.<\/p>\n\n\n\n
Your total gain minus your tax-free capital gains tax allowance of \u00a33,000 leaves you with a taxable gain of \u00a3214,000.<\/p>\n\n\n\n
Your annual income is \u00a365,000, which means you pay the higher rate of income tax. <\/p>\n\n\n\n
As a result, you pay \u00a351,360 at 24 per cent on the taxable gain of \u00a3214,000.<\/p>\n\n\n\n
Capital gains tax on property calculator<\/strong><\/h3>\n\n\n\n
The government website has a capital gains tax on property calculator<\/a> that you can use to work out if you need to report and how much you need to pay.<\/p>\n\n\n\n
How to report and pay capital gains tax on UK property<\/strong><\/h2>\n\n\n\n
Since October 2021, if you sell a property that\u2019s not your main home you\u2019ll need to report and pay your capital gains tax within 60 days of the sale.<\/p>\n\n\n\n
You can use a \u2018Capital Gains Tax on UK property account<\/a>\u2019 to report your gain and pay your bill. You can also use this account to view previous CGT returns.<\/p>\n\n\n\n
When reporting and paying your capital gains tax bill, you\u2019ll need information such as:<\/p>\n\n\n\n
- \n
- when you bought or came into ownership of the property <\/li>\n\n\n\n
- when you sold the property (exchange and completion date)<\/li>\n\n\n\n
- how much you bought the property for (or how much it was worth when you became its owner)<\/li>\n\n\n\n
- the value of the property when you sold it<\/li>\n\n\n\n
- the costs you incurred when buying, selling, or improving the property<\/li>\n\n\n\n
- any tax allowances, exemptions, or reliefs you\u2019re entitled to<\/li>\n<\/ul>\n\n\n\n
What are the penalties for failing to pay capital gains tax?<\/h2>\n\n\n\n
Fines for failing to pay capital gains tax are based on the amount of tax you owe HMRC and whether you deliberately avoid paying.<\/p>\n\n\n\n
For example, if your failure to notify HMRC about the CGT you owe isn\u2019t deliberate (such as a careless mistake), you could be fined between 0 per cent and 30 per cent of the tax you owe if you come forward. If you\u2019re prompted by HMRC, the penalty will be between 10 per cent and 30 per cent of the unpaid tax.<\/p>\n\n\n\n
For a deliberate failure to notify HMRC, you could be fined:<\/p>\n\n\n\n
- \n
- 20 per cent to 70 per cent of unpaid tax for an unprompted disclosure<\/li>\n\n\n\n
- 35 per cent to 70 per cent of unpaid tax for a prompted disclosure<\/li>\n<\/ul>\n\n\n\n
For a deliberate and concealed failure to notify HMRC, you could be fined:<\/p>\n\n\n\n
- \n
- 30 per cent to 100 per cent of unpaid tax for an unprompted disclosure<\/li>\n\n\n\n
- 50 per cent to 100 per cent of unpaid tax for a prompted disclosure<\/li>\n<\/ul>\n\n\n\n
How much you\u2019ll be fined within each range will be down to the quality of your disclosure. For example, the quality of information and records you provide.<\/p>\n\n\n\n
Capital gains tax fines for UK landlords<\/h3>\n\n\n\n
As well as fines for failing to notify HMRC, landlords could be fined for late reporting of capital gains tax. If capital gains tax isn\u2019t filed:<\/p>\n\n\n\n
- \n
- within 60 days, you could be fined \u00a3100<\/li>\n\n\n\n
- for six months, you could be fined a further \u00a3300 or five per cent of the tax due (whichever is greater)<\/li>\n\n\n\n
- for 12 months, you could be fined a further \u00a3300 or five per cent of the tax due (whichever is greater)<\/li>\n<\/ul>\n\n\n\n
HMRC capital gains tax fines on the rise<\/h3>\n\n\n\n
Capital gains tax penalties for failing to notify HMRC have more than doubled in recent years, according to a freedom of information request by Financial Software Limited (FSL).<\/p>\n\n\n\n
There were 350 failure to notify penalties issued in the 2024-25 tax year, up from 1,665 in 2022-23. It\u2019s likely that the rise in people failing to notify HMRC about their CGT liability is due to the significant reduction in the CGT allowance since 2023. <\/p>\n\n\n\n
\u201cIt\u2019s astonishing that just 350 taxpayers failed to notify HMRC they were subject to CGT over the last year. These figures are most likely the tip of the iceberg,\u201d said Alex Ranahan, tax reporting analyst at FSL.<\/p>\n\n\n\n
\nCapital gains tax on residential property \u2013 4 key takeaways<\/strong><\/h2>\n\n\n\n
- \n
- When you sell a rental property for a profit, it\u2019s highly likely you\u2019ll need to pay capital gains tax<\/li>\n\n\n\n
- You pay CGT on everything above the first \u00a33,000 profit you make<\/li>\n\n\n\n
- Capital gains tax on property is charged at 18 per cent for lower rate tax payers and 24 per cent for higher rate taxpayers<\/li>\n\n\n\n
- You can reduce your capital gains tax bill if you\u2019ve lived in the property and you qualify for Private Residence Relief<\/li>\n<\/ol>\n<\/div>\n\n\n\n
Property capital gains tax \u2013 landlord FAQs<\/h2>\n\n\n\n
Understanding capital gains tax on a property sale can be tricky, so here are some answers to some frequently asked questions. <\/p>\n\n\n\n
Do you pay capital gains tax if you reinvest in another property?<\/h3>\n\n\n\n
Put simply, yes, you\u2019ll have to pay capital gains tax on your sale even if you\u2019re planning to buy another investment property right away.<\/p>\n\n\n\n
Do you have to pay capital gains tax on inherited property?<\/h3>\n\n\n\n
If you inherit a property that increases in value, you\u2019ll be liable to pay CGT when you sell it. To work out the gain, you\u2019ll need to get a valuation for how much the property was worth when you inherited. <\/p>\n\n\n\n
To avoid paying CGT on an inherited property, you could: <\/p>\n\n\n\n
- \n
- dispose of the property immediately \u2013 if you sell or gift the property as soon as you\u2019ve been given it, you won\u2019t need to pay CGT<\/li>\n\n\n\n
- live in the property \u2013 if you make the property your principal residence for the entire time you\u2019ve owned it, you won\u2019t need to pay CGT when you sell<\/li>\n<\/ul>\n\n\n\n
How long do you have to live in a property to avoid capital gains tax?<\/h3>\n\n\n\n
If, as outlined above, you decide to make a property your main residence to avoid paying capital gains tax, you\u2019ll need to live there for at least a year.<\/p>\n\n\n\n
Crucially, you\u2019ll have to have lived there for the whole of the time you\u2019ve owned if you don\u2019t want to pay any CGT.<\/p>\n\n\n\n
HMRC considers a property to be your main residence if you spend most of your time there and are registered to vote there.<\/p>\n\n\n\n
Do you have to pay capital gains tax on commercial property?<\/h3>\n\n\n\n
If you sell a commercial property for a profit, you\u2019ll need to pay capital gains tax.<\/p>\n\n\n\n
However, there\u2019s an exception if the property is held and sold through a limited company. In that case, you\u2019ll pay corporation tax rather than capital gains tax.<\/p>\n\n\n\n
How much you\u2019ll pay will depend on your tax band (10 per cent for basic rate taxpayers, 20 per cent for higher and additional rate taxpayers).<\/p>\n\n\n\n
The CGT rate due on a commercial property is less than what you\u2019d need to pay when selling a residential property.<\/p>\n\n\n\n
What is Private Residence Relief?<\/h3>\n\n\n\n
Private Residence Relief<\/a> is a tax relief that prevents people who are selling their main residence from paying capital gains tax. <\/p>\n\n\n\n
Landlords who sell a property can also use Private Residence Relief to reduce their CGT bill if the property has been their main residence at some point. <\/p>\n\n\n\n
Landlords can pay reduced CGT for the period they lived in the property as well as the last nine months of ownership before the sale (even if they weren\u2019t living there at that time).<\/p>\n\n\n\n
Capital gains tax \u2013 what counts as your main home?<\/h3>\n\n\n\n
Your main home for the purpose of capital gains tax is the property you actually live in. For a property to be your main home, you\u2019ll need to prove you\u2019ve lived there permanently rather than just for a short period.<\/p>\n\n\n\n
If you own multiple properties, you can nominate a main residence to HMRC.<\/p>\n\n\n\n
More guides for landlords<\/h3>\n\n\n\n
- \n
- New Renters\u2019 Rights Bill launched<\/a><\/li>\n\n\n\n
- New energy efficiency rules for rental properties<\/a><\/li>\n\n\n\n
- Guide to property maintenance and repair<\/a><\/li>\n\n\n\n
- How to get a buy-to-let mortgage<\/a><\/li>\n<\/ul>\n\n\n\n
\nGet set with tailored landlord cover<\/h3>\n\n\n\n
Over 200,000 UK landlord policies, a 9\/10 customer rating and claims handled by an award-winning team. Looking to switch or start a new policy? Run a quick landlord insurance quote<\/a> today.<\/p>\n\n\n\n
- New energy efficiency rules for rental properties<\/a><\/li>\n\n\n\n
- New Renters\u2019 Rights Bill launched<\/a><\/li>\n\n\n\n
- Acquisition costs<\/strong> \u2013 which can include solicitor\u2019s fees and stamp duty<\/a><\/li>\n\n\n\n
- Deduct costs:<\/strong> subtract certain costs related to selling or improving the property from your gain. These can include estate agent fees, as well as renovations like extensions.<\/li>\n\n\n\n
- calculating your total taxable income, applying your income tax allowance<\/a> and any reliefs<\/li>\n\n\n\n
- the capital gains tax allowance for landlords<\/a><\/li>\n\n\n\n