Capital Gains Tax on Property: How to Calculate and Reduce It

The Accounted Business Team·18 February 2026·7 min read

What Is Capital Gains Tax on Property?

Capital gains tax (CGT) is the tax you pay on the profit when you sell or dispose of an asset that has increased in value. For property, the "gain" is the difference between what you paid for the property and what you sold it for, minus certain allowable costs.

CGT on residential property is charged at higher rates than other assets, and there is a strict 60-day reporting deadline that catches many people out. This guide explains how to calculate your gain, what reliefs are available, and how to reduce your bill.

CGT Rates on Residential Property in 2025/26

The rates for residential property gains are:

18% for gains falling within the basic rate band
24% for gains falling within the higher or additional rate band

These rates apply after you have used your annual exempt amount and any available reliefs. Your other income for the year determines how much of the basic rate band you have left.

For example, if your taxable income (salary, rental income, etc.) is £40,000, you have used up £40,000 of the basic rate band (which runs to £50,270 in 2025/26). That leaves £10,270 of the basic rate band. The first £10,270 of your property gain would be taxed at 18%, and the rest at 24%.

The Annual Exempt Amount

In 2025/26, the annual exempt amount for CGT is £3,000. This means the first £3,000 of your total capital gains in the tax year are tax-free.

This has been reduced significantly in recent years — it was £12,300 as recently as 2022/23. At £3,000, it makes very little difference on a large property gain, but it is still worth claiming.

The annual exempt amount cannot be carried forward. If you do not use it in one tax year, it is lost.

The 60-Day Reporting Requirement

If you sell a UK residential property that is not your main home (or not fully covered by private residence relief), you must report the disposal and pay any CGT due within 60 days of completion.

This is done through HMRC's online CGT on UK property service, not through your normal self-assessment tax return. You create a "capital gains tax on UK property account" on the HMRC website and submit the report there.

Key Points About the 60-Day Rule

The 60 days run from the date of completion (when ownership transfers), not the date of exchange.
You must estimate your gain and pay the CGT within the same 60-day window.
You still need to report the gain on your self-assessment tax return for the year, where the final figures are confirmed. Any overpayment is refunded or underpayment collected.
If you miss the 60-day deadline, HMRC charges penalties and interest.

Penalties for Late Reporting

Late reporting attracts a £100 fixed penalty (up to 6 months late), rising to £300 or 5% of tax due (6-12 months), and up to 100% of tax due if over 12 months late. Interest runs from the date the tax was due.

How to Calculate Your Capital Gain

Step 1: Work Out Your Disposal Proceeds

This is usually the sale price. If you give the property away or sell it below market value to a connected person, HMRC uses market value instead.

Step 2: Deduct the Acquisition Cost

This is what you originally paid for the property. If inherited, use the probate value. If gifted, use the market value at the date of the gift.

Step 3: Deduct Allowable Costs

You can deduct:

Solicitor and conveyancing fees on both the purchase and the sale
Stamp duty land tax paid when you bought the property
Estate agent fees on the sale
Survey and valuation costs at the point of purchase
Improvement costs — capital expenditure that enhanced the property (extensions, loft conversions, new kitchen installation). You cannot deduct maintenance or repair costs.

Step 4: Apply Any Reliefs

Deduct any reliefs you are entitled to (see below).

Step 5: Deduct the Annual Exempt Amount

Subtract your £3,000 annual exempt amount (assuming you have not already used it against other gains in the same year).

Step 6: Calculate the Tax

Apply the 18% or 24% rate depending on your income.

Worked Example

David bought a buy-to-let flat in 2015 for £200,000. He sells it in October 2025 for £310,000. He paid £2,000 in solicitor fees when buying, £2,000 stamp duty, £5,000 in estate agent fees on the sale, and £1,500 in solicitor fees on the sale. He also spent £15,000 adding a new bathroom (an improvement). His salary for 2025/26 is £42,000.

Disposal proceeds: £310,000

Less acquisition cost: £200,000

Less allowable costs:

Purchase solicitor fees: £2,000
Stamp duty on purchase: £2,000
Sale estate agent fees: £5,000
Sale solicitor fees: £1,500
Bathroom improvement: £15,000
Total costs: £25,500

Gain before reliefs: £310,000 - £200,000 - £25,500 = £84,500

Less annual exempt amount: £3,000

Taxable gain: £81,500

Tax calculation: David's salary of £42,000 leaves £8,270 of the basic rate band (£50,270 - £42,000). The first £8,270 of gain is taxed at 18% = £1,488.60. The remaining £73,230 is taxed at 24% = £17,575.20.

Total CGT: £19,063.80

David must report this and pay within 60 days of completion.

Reliefs That Reduce Your CGT

Principal Private Residence Relief (PPR)

If the property has been your main home for the entire time you owned it, you pay no CGT at all. PPR covers your entire period of ownership.

If you lived in the property for part of the time and rented it out for the rest, you get PPR for the period you lived there, plus the last 9 months of ownership (regardless of whether you lived there during that final period).

Example: You owned a property for 10 years. You lived in it for 6 years, then rented it out for 4 years. PPR covers 6 years plus the final 9 months = 6 years and 9 months out of 10 years. You would be taxed on 3 years and 3 months of the gain (3.25/10 of the total gain).

Letting Relief

Since April 2020, letting relief only applies if you shared occupation of the property with the tenant — for example, if you had a lodger while you lived there. The relief is the lower of the PPR amount, £40,000, or the gain from the letting period. For most landlords who did not share the property with tenants, letting relief no longer applies.

Transfers Between Spouses

Transfers between married couples and civil partners are treated as "no gain, no loss" for CGT purposes. This means you can transfer a property to your spouse without triggering CGT. This is a common planning tool — if one spouse has unused basic rate band or annual exempt amount, transferring a share of the property before sale can reduce the overall CGT bill.

Losses

If you have capital losses from other disposals in the same tax year (or brought forward from previous years), you can set them against your property gain to reduce the taxable amount.

Strategies to Reduce Your CGT Bill

Time the Sale

If you own multiple properties, staggering sales across two tax years lets you use two annual exempt amounts (£3,000 each).

Claim All Improvement Costs

Every pound of genuine improvement expenditure reduces your gain. Keep receipts for building work, extensions, fitted kitchens, and bathrooms.

Use Your Spouse's Allowances

Transfer a share of the property to your spouse before sale. They get their own £3,000 exempt amount and may have unused basic rate band, reducing the blended tax rate.

Make Pension Contributions

Pension contributions extend your basic rate band. A £10,000 contribution means an extra £10,000 of gain is taxed at 18% instead of 24%, saving £600.

Keep Your Records in Order

CGT calculations require accurate records stretching back to when you bought the property. Purchase costs, improvement receipts, and professional fees all need to be accessible when you sell.

Accounted helps you keep your property finances organised throughout the year. Penny categorises your income and costs as they happen, so when it comes time to sell, you have a clear record of everything you need for your CGT calculation.

Start your free trial of Accounted and get your property finances in order before your next disposal. Accurate records today mean fewer headaches — and potentially a lower tax bill — when you come to sell.

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