Selling a property in the UK can have significant tax implications, particularly when it comes to Capital Gains Tax (CGT). Whether you’ve sold a second home, a buy-to-let property, or land, it’s crucial to understand how to calculate, report, and pay any CGT due. This comprehensive guide explains everything you need to know about filing a UK tax return after selling a property, including key exemptions, reliefs, and how to avoid costly mistakes.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit (gain) you make when you sell an asset that’s increased in value. For property sales, CGT applies to gains from selling second homes, rental properties, or land—excluding your main residence in most cases. The gain is calculated as the difference between the sale proceeds and the original purchase price, minus allowable costs and reliefs.
When Does CGT Apply to Property Sales?
CGT applies if:
- You sell a property that is not your main residence (e.g. buy-to-let, holiday home, inherited property, or land).
- You sell part of your garden or land exceeding permitted size (over 0.5 hectares) around your home.
- You dispose of a property that was once your main residence but has been let out or left vacant for a significant period.
Your main home is generally exempt under Private Residence Relief (PRR), but certain conditions and exceptions may apply, which we’ll cover below.
Calculating Your Gain
To calculate your capital gain, follow these steps:
- Sale Proceeds: The amount you received for the property, minus any selling costs (estate agent fees, legal fees, etc.).
- Deduct Purchase Price: The original price you paid for the property.
- Deduct Allowable Costs: Include costs of improvements (extensions, conversions, etc.), but not maintenance or repairs.
- Calculate Net Gain: Subtract all allowable costs from the sale proceeds minus purchase price.
This net gain is the amount potentially subject to CGT.
Annual Exempt Amount
Every individual is entitled to an annual CGT exemption. For the 2024/25 tax year, the annual exempt amount is £3,000. This means that the first £3,000 of your net gain is tax-free, and only the amount exceeding this is subject to tax.
Capital Gains Tax Rates
For residential property sales, CGT rates are higher than for other assets:
- Basic Rate Taxpayers: 18% on residential property gains.
- Higher and Additional Rate Taxpayers: 28% on residential property gains.
Remember that your taxable income from other sources (salary, dividends, etc.) determines which band you fall into, so careful planning is essential.
Private Residence Relief (PRR)
If the property sold was your only or main residence throughout your period of ownership, you may be eligible for Private Residence Relief. PRR can exempt all or part of the gain from CGT. Even if you lived in the property for part of the time, you may qualify for partial relief.
Since April 2020, lettings relief is only available if you shared occupancy with a tenant. This change has reduced the availability of additional relief for let properties that were once your main residence.
Reporting the Sale to HMRC
Since April 2020, UK residents selling UK residential property must report and pay any CGT due within 60 days of completion using the Capital Gains Tax on UK Property Account. This is separate from your Self Assessment tax return. You must:
- Calculate the gain and the tax due.
- Report the sale online using the HMRC property disposal service.
- Pay any tax due within 60 days of completion.
This is in addition to including the gain on your annual Self Assessment tax return.
Filing Your Self Assessment Tax Return
When completing your Self Assessment tax return, you must include details of the property sale, even if you’ve already paid some or all of the CGT via the 60-day report. Follow these steps:
- Complete the ‘Capital Gains Summary’ Section: Include details of the property sale, the date of sale, sale price, purchase price, and all associated costs and reliefs claimed.
- Report Any CGT Already Paid: Enter the amount paid via the 60-day return so HMRC can offset this against your total tax liability.
- Confirm Any Additional CGT Due: HMRC will calculate if there’s any additional CGT owed after considering your other income and tax bands.
- Submit by 31 January: The deadline for filing the tax return and paying any remaining tax due is 31 January following the end of the tax year.
Failing to report or pay on time can lead to interest and penalties, so it’s crucial to meet all deadlines.
Reliefs and Exemptions to Consider
To reduce your CGT liability, consider the following reliefs and exemptions:
- Private Residence Relief (PRR): For your main home, full or partial relief may apply.
- Lettings Relief: Only available in limited cases where you lived in the property with tenants.
- Spousal Transfers: Transferring assets between spouses or civil partners is free of CGT and can be a valuable planning tool.
- Business Asset Disposal Relief: Not typically available on residential property unless the property was used in a business (e.g. furnished holiday let).
Planning ahead can help you maximize reliefs and reduce the amount of CGT payable.
Paying the Tax
Any CGT due must be paid either:
- Within 60 days of selling the property via the HMRC property disposal service; and/or
- By 31 January following the end of the tax year via your Self Assessment tax return if there’s additional tax due.
Late payments can incur interest charges and penalties, so prompt action is important.
Record-Keeping Requirements
HMRC requires you to keep records of:
- Property purchase and sale contracts.
- Legal fees and other costs of acquisition and disposal.
- Improvement costs (with evidence such as invoices).
- Details of any reliefs claimed and the calculations used.
Keep these records for at least 5 years after the 31 January filing deadline of the relevant tax year.
Getting Professional Advice
Calculating CGT on property sales can be complex, especially with changing legislation and the interaction of different reliefs. A qualified tax adviser or accountant can help ensure your calculations are correct, you claim all available reliefs, and you meet all reporting deadlines.
Conclusion
Selling a property in the UK comes with important tax responsibilities. Understanding how to calculate your gain, what reliefs are available, and how to report the sale to HMRC helps you stay compliant and potentially reduce your tax bill. By planning ahead, keeping thorough records, and seeking professional advice where needed, you can navigate Capital Gains Tax confidently and avoid costly mistakes.
