Capital Gains Tax – UK Land & Property

The disposal of UK residential property can realise a hefty, sometimes unexpected tax bill; understanding some basic rules around CGT compliance is essential to avoiding unwelcome surprises. The onus is on the seller to meet their tax obligations as they arise according to statutory deadlines. 

HMRC are not obliged to give advanced notice to or forewarn the taxpayer in respect of CGT. This is despite the ICAEW recently announcing that as part of a new initiative, HMRC may write to individuals where it does have information to hand from, say, Land Registry to suggest that CGT may apply. This is not likely to give grounds to an appellant if HMRC were to issue penalties for a CGT compliance failure if they did not write to the taxpayer.

When could Capital Gains Tax Apply?

Capital Gains Tax (CGT) can apply to the profit made (i.e. the gain or deemed gain) when you sell, or dispose of, or gift a chargeable asset that has increased in value. There are limited exemptions (e.g. cars), but these do not include UK residential property which has its own special compliance regime.

Residential property can include a second home, a buy-to-let, or a property that has not always been a main residence. CGT is complex but the gain is broadly calculated as the difference between a property's sale price and its purchase price. Relief can be given for certain incidental costs applying at the time of acquisition (e.g. land transaction tax) or at disposal (e.g. legal fees). CGT can also apply even if the asset is gifted for £nil consideration or sold at an undervalue – these situations are often overlooked.

A main home, or former main home, could qualify for Principal Private Residence Relief (PPR relief), meaning up to 100% of the gain is relieved. Whether or not any CGT would be due on a main home would depend on it satisfying specific qualifying conditions during the ownership period. It should not be assumed that PPR relief applies in all cases.

Reporting Rules

HMRC requires UK residents who realise a gain (or deemed gain) on the disposal of UK residential property to report and pay any CGT within 60 days of completion. If no CGT is due despite there being a gain, the '60-day' return is not necessary. If you normally complete a Self-assessment tax return, you will also be required to report the transaction in your return.

Non-UK residents are also subject to a 60-day reporting requirement when disposing of UK land/property irrespective of it being residential or commercial. This applies even if no CGT is due.

As mentioned above, to support compliance, HMRC now uses the data it holds to identify qualifying disposals and may write to taxpayers before the deadline if it believes a return may be required. These letters specify the property involved and provide links to HMRC's guidance. Taxpayers who do not believe they need to file should contact HMRC to confirm but this potential 'prompt' is not guaranteed and should not be considered as a compliance 'backstop'.

Failure to comply with the rules can result in interest charges and late-filing penalties, making it crucial to act promptly, usually before the planned disposal.

How Much CGT Will You Pay?

Currently, as at September 2025, the rate of CGT on residential property is:

• 18% for basic rate taxpayers (where the gain falls within the basic rate tax band);
• 24% for higher and additional rate taxpayers (or where the gain impacts the higher rate tax band).

Individuals can make aggregated gains up to an 'annual exemption' per tax year without paying any CGT. However, the annual exemption is currently only £3,000.

Given that CGT rates for residential properties were left alone in the 2024 Autumn Budget, they could be a target in this year's November budget. There has also been a lot of speculation that the CGT annual exemption could be further abated or withdrawn altogether despite having already been reduced from £12,300 to £3,000 across the last few years.

Reducing Your CGT Bill

There are several legitimate ways to reduce your CGT liability on the sale of residential property:

• Principal Private Residence Relief (PPR): If the property was your main residence for part of the ownership period, you may qualify for relief on that period (plus the final 9 months of ownership).
• Letting Relief: Previously, limited relief may have applied where a property was once your main home and later rented out. However, recent changes mean this is now heavily restricted and not appropriate in most cases.
• Spousal Transfers: With advance planning, transfers between spouses or civil partners are exempt from CGT, potentially allowing gains to be split and taxed more efficiently.
• Deductible Costs: Claiming allowable expenses such as purchase costs, legal fees, estate agent fees and the cost of qualifying capital improvements or enhancements (but not general maintenance or like-for-like replacements).
• Offsetting Losses: If you've made capital losses on other assets, these can be offset against gains to reduce your overall liability.

In Summary

Navigating CGT rules on residential property sales can be complex, particularly when multiple reliefs and reporting obligations are involved. Careful, timely planning is essential. Our expert team can:

• Calculate your potential liability accurately;
• Identify opportunities for tax relief, ensuring you pay no more tax than necessary;
• Assist with 60-day CGT reporting to HMRC; and
• Advise on longer-term tax planning strategies.

If you're planning to sell a property and want tax advice, contact us today us for expert guidance.

Author

John Dyer | CTA
Senior Tax Manager