Capital Gains Tax (CGT) is a tax you pay on the profit (or “gain”) you make when you sell an asset that has increased in value, like a buy-to-let property, second home, or land. You are taxed only on the gain, not the total sale price.
In UK property investment, CGT most often applies when you sell:
- A rental property you own (not your main home, which is usually exempt under Private Residence Relief).
- Land held for investment purposes.
- A second home.
How Capital Gains Tax Works for Property Investors
When you sell an investment property:
1. Work out your gain
Example:
Sale price – Purchase price – Allowable costs (such as legal fees, estate agent fees, and certain improvement costs) = Capital gain.
- Bought a rental flat for £200,000
- Spent £5,000 on legal and estate agent fees
- Sold it for £270,000
- Net gain = £270,000 – £200,000 – £5,000 = £65,000
2. Apply the CGT allowance
Each individual gets an annual Capital Gains Tax allowance (known as the Annual Exempt Amount). In 2024/25 this is £3,000. Anything above this is taxable.
| Tax Band | CGT Rate on Residential Property | Annual Exempt Amount 2024/25 | Reporting Deadline |
|---|---|---|---|
| Basic Rate | 18% | £3,000 | 60 days from completion |
| Higher/Additional Rate | 24% | £3,000 | 60 days from completion |
Note: Gains from non-residential assets are taxed at 10% (basic rate) or 20% (higher/additional rate).
3. Apply the correct tax rate
- Basic rate taxpayers: 18% on property gains.
- Higher or additional rate taxpayers: 24% on property gains.
Example continued:
- Gain: £65,000 – £3,000 allowance = £62,000 taxable gain.
- If you’re a higher rate taxpayer: £62,000 × 24% = £14,880 CGT bill.
