Capital Gains Tax on Property UK 2026: How to Calculate What You Owe

2026-09-16

Capital Gains Tax on Property UK 2026: How to Calculate What You Owe

The CGT Landscape Has Changed — Here's What Matters in 2025/26

If you're selling an investment property in the UK, Capital Gains Tax is probably the single biggest cost you haven't fully calculated. The annual exempt amount has been slashed from £12,300 to just £3,000, residential property rates remain at 18% (basic rate) and 24% (higher rate), and the reporting deadline is tight — 60 days from completion to file and pay.

Get this wrong and you're looking at penalties, interest charges, and a tax bill that could wipe out a significant chunk of your profit. Get it right and there are legitimate ways to reduce your liability, sometimes substantially.

How Capital Gains Tax Works on Property

The calculation is deceptively simple in principle:

Gain = Sale price - Purchase price - Allowable costs - Annual exempt amount

Then you apply the residential property CGT rate based on your income tax band. But every element of that formula has nuances that most guides skip.

What Counts as an Allowable Cost

You can deduct any costs directly related to buying, improving, or selling the property. This includes:

The critical distinction is between improvements and repairs. Adding a conservatory is an allowable cost. Fixing a leaking roof is not — that's maintenance, even if it cost £10,000. Replacing single-glazed windows with double glazing is an improvement. Repairing a broken window is not.

Keep every receipt. If you can't evidence a cost, you can't deduct it. HMRC won't accept estimates.

The Annual Exempt Amount

For 2025/26, the annual exempt amount is £3,000 per person. If you jointly own the property with a spouse or civil partner, you each get a £3,000 allowance, meaning the first £6,000 of combined gain is tax-free.

This is a fraction of what it was. In 2022/23 it was £12,300 per person. The reduction means CGT planning is now more important than ever — especially on properties with large gains.

CGT Rates on Residential Property

Residential property CGT rates for 2025/26:

Most property investors selling a property with a meaningful gain will pay 24% on the majority of it. If you're a higher-rate taxpayer already, the entire gain is taxed at 24%.

A Worked Example

You bought a buy-to-let flat in 2018 for £165,000. You spent £2,500 on legal fees and £9,250 in stamp duty. Over the years you added a new kitchen (£8,000) and replaced the bathroom (£5,500). You're now selling for £245,000 with £4,000 in estate agent and legal fees.

That's £11,460 in tax on a £80,000 gross gain. Nearly 15% of your headline profit. And that's after claiming every allowable deduction. Without the improvement costs, the bill would be £14,700.

Strategies to Legally Reduce Your CGT Bill

1. Use Both Annual Allowances

If you own the property jointly with a spouse, you each get a £3,000 annual exempt amount. That saves £1,440 at the 24% rate. It's not life-changing, but it's free money.

2. Time the Sale Around Your Income

If you have a year of lower income — perhaps you've gone part-time, taken a career break, or retired — some of the gain may fall into the basic rate band and be taxed at 18% instead of 24%. The difference on a £50,000 gain could be £3,000.

3. Offset Losses

If you've made a capital loss on another asset (shares, another property, cryptocurrency), you can offset it against your property gain. Losses can be carried forward indefinitely, so check whether you have any unused losses from previous years.

4. Private Residence Relief

If you lived in the property as your main home at any point, you may qualify for partial Private Residence Relief. The final nine months of ownership are always exempt, regardless of whether you lived there. If you owned the property for 10 years and lived in it for the first 3, you'd get relief on 3 years plus the final 9 months — a significant reduction.

5. Letting Relief

If you qualify for Private Residence Relief and also let the property, you may get additional letting relief of up to £40,000 (or the amount of PRR, whichever is lower). This only applies if you shared occupancy with the tenant — it's narrower than it used to be, but still valuable if it applies.

The 60-Day Reporting Deadline

Since April 2020, UK residents must report and pay CGT on property disposals within 60 days of completion. Not exchange — completion. Miss the deadline and you face a £100 late filing penalty, plus interest on the unpaid tax.

This catches people who are used to dealing with CGT through their annual self-assessment. Property CGT is different. You file a separate UK Property Disposal return through your Government Gateway account, pay the estimated tax, and then reconcile on your annual return.

Don't leave this until the last week. Gathering purchase receipts, improvement invoices, and calculating allowable costs takes time. Start the paperwork the day you accept an offer.

Run Your Numbers Before You List

The time to calculate your CGT bill is before you put the property on the market, not after you've accepted an offer. Knowing the after-tax profit determines whether selling is actually the right strategy — sometimes remortgaging and holding produces a better outcome than selling and paying CGT.

Run the numbers. If the tax bill makes selling unattractive, consider refinancing instead. The maths should make the decision, not the emotion.