Capital Gains Tax on UK Residential Property

Overview

Capital Gains Tax (CGT) on UK residential property has undergone significant change over recent years. Between updated rates, the abolition of letting relief, changes to Private Residence Relief (PRR), and the mandatory 60-day reporting window, property investors and landlords face a considerably more complex compliance landscape than existed a decade ago.

This article summarises the current CGT rules as they apply to residential property disposals, highlights the key reliefs available, and flags common pitfalls.

CGT Rates on Residential Property

Following the October 2024 Autumn Budget, CGT rates on residential property for 2025/26 are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. These rates apply to gains on UK residential property that do not qualify for full Private Residence Relief.

Where a taxpayer has unused basic rate band available, a portion of the gain may be taxed at the lower 18% rate. The gain is treated as the top slice of income for this purpose.

Note: The main CGT rates on non-residential assets changed at the Autumn Budget 2024. Residential property rates remain distinct — ensure you are using the correct rates for each asset class.

The Annual Exempt Amount

Each individual is entitled to an Annual Exempt Amount (AEA), within which capital gains are free of CGT. For 2025/26, the AEA stands at £3,000 — substantially reduced from the £12,300 available in 2022/23. For most property investors disposing of assets above this relatively modest threshold, CGT will be payable.

The AEA cannot be transferred between spouses, but each party to a jointly held property has their own AEA. Disposing of property jointly owned with a spouse or civil partner therefore allows both AEAs to be utilised.

Private Residence Relief

The Basic Rule

PRR exempts from CGT any gain attributable to a period during which the property was the individual's only or main residence. Where the property has always been the main residence throughout the ownership period, the full gain is exempt.

Deemed Occupation Periods

Certain periods of absence are treated as deemed periods of occupation for PRR purposes under TCGA 1992 s.223, including:

• The final nine months of ownership (reduced from 18 months for disposals after 6 April 2020) — applies regardless of reason for vacancy

• Any period of up to four years during which the owner worked away from home in the UK

• Any period working abroad, provided the owner returned to occupy the property afterwards

These deemed periods can be valuable where a property was a main residence for part of the ownership period — they extend the PRR fraction and reduce the chargeable gain.

Election for Main Residence

Where an individual has two or more residences, they may elect which is to be treated as the main residence for PRR. The election must be made within two years of acquiring an additional residence. A strategic election — for example, to nominate a property with a larger accrued gain — can be a significant planning tool.

Letting Relief: Now Very Limited

Prior to 6 April 2020, letting relief could exempt up to £40,000 of gain where a property that had been a main residence was subsequently let. This relief was substantially restricted and now only applies where the owner is in shared occupancy with the tenant at the time of disposal — a narrow set of circumstances that rarely applies to typical buy-to-let investors.

The 60-Day Reporting and Payment Requirement

Since 27 October 2021, any taxable gain on UK residential property must be reported to HMRC and the CGT paid within 60 days of completion. This is done via the UK Property Reporting Service, a standalone online platform separate from Self Assessment.

Failure to report and pay within the 60-day window results in late filing penalties and interest on the outstanding tax. The requirement applies even if the taxpayer's overall CGT liability for the year is subsequently nil (for example, because losses arise on other disposals) — in such cases, an amendment to the return can be made through Self Assessment.

Practical point: The 60-day clock runs from completion, not exchange. Where contracts exchange with a long period to completion, there is time to plan. Once completion occurs, clients should contact us immediately so that we can compute the liability and submit the return within time.

Computing the Gain: Common Adjustments

• Acquisition costs: Includes purchase price, Stamp Duty Land Tax, legal fees, and survey costs

• Enhancement expenditure: Capital improvements that are reflected in the state and nature of the property at disposal — note that routine maintenance and repairs are not allowable

• Disposal costs: Legal fees, estate agent fees, and associated selling costs are deductible

• Inter-spouse transfers: No gain/no loss on transfers between spouses living together — the receiving spouse inherits the original base cost

  
  

Non-UK Residents

Non-UK residents are subject to UK CGT on disposals of UK land and property under the Non-Resident CGT regime. All non-resident disposals of UK property must be reported within 60 days of completion, regardless of whether any gain arises. Non-residents may elect to rebase to April 2015 values for residential property or April 2019 values for commercial property.

Key Planning Points

• Consider the timing of disposals in relation to year-end to manage rate exposure (e.g., utilising the lower basic rate band)

• Review whether a main residence election is in place and whether it should be varied where two properties are held

• Explore inter-spouse transfers to equalise gains and utilise both AEAs and lower rate bands

• Document all capital expenditure — receipts should be retained throughout the ownership period

• Engage your accountant as early as possible — preferably before exchange — to allow proper planning and compliance preparation