Capital gains tax when selling a house

Capital Gains Tax (CGT) is a tax levied by HM Revenue and Customs (HMRC) on the profit you make when selling an asset that has increased in value. When it comes to property in England and Wales, you are generally liable to pay CGT if the property you are selling is not your primary home, such as a buy-to-let investment, a second residence, or an inherited house.

Fortunately, if you are selling your main home, you will usually not face a tax bill. This is due to Principal Private Residence (PPR) relief, which fully exempts your primary residence from Capital Gains Tax.

If you are selling a taxable property, the final amount you owe is calculated on the net gain, not the total sale price. You can significantly reduce your tax liability by deducting allowable purchase, sale, and improvement costs. Furthermore, if you lived in the property as your main residence at any point during your ownership, you can claim partial Private Residence Relief to legally reduce the taxable portion of your gain.

It is also vital to understand that HMRC's rules change depending on the nature of the transaction. There are strict regulations regarding who you transfer the property to and the tax implications of selling a home below market value. For a detailed breakdown of these specific scenarios, read our complete guide on Capital Gains Tax on Gifted Property.

Do you have to pay tax when selling a house?

You do not normally pay tax on your main home. However, CGT applies when you dispose of an asset that has increased in value, and residential property falls into this category if it is not your sole residence. You will typically need to calculate and pay tax if you are selling:

• A buy-to-let investment property.
• A second home or a holiday home.
• An inherited property (tax is paid on the gain in value from the date of inheritance to the date of sale).
• A property that includes significant land (usually over 5,000 square metres) or outbuildings used for business.

Understanding the annual xxempt amount

Before you finalise your tax calculation, it is important to factor in the Capital Gains Tax Annual Exempt Amount. This is a tax-free allowance that every individual receives. You only pay CGT on the profit that exceeds this allowance.

For the 2026/27 tax year, the Annual Exempt Amount is £3,000 per individual. If you co-own the property with someone else, you can both use your allowances against your respective shares of the gain, effectively doubling the tax-free portion to £6,000.

How to calculate your capital gain

Your capital gain is not the sale price of the property; it is the profit you have made after deducting the original purchase price and allowable costs. Here is a simplified example of how the calculation works:

1. Total Cost: Purchase Price + Purchase Costs (e.g., Stamp Duty, legal fees).
2. Net Proceeds: Sale Price - Selling Costs (e.g., estate agent fees, conveyancing fees).
3. Gross Gain: Net Proceeds - Total Cost.
4. Taxable Gain: Gross Gain - Annual Exempt Amount (£3,000).
5. Tax Owed: Taxable Gain multiplied by your applicable CGT rate.

Deducting allowable costs

To ensure you do not overpay, you can deduct specific expenses incurred during the purchase, sale, and improvement of the property. HMRC's strict guidelines state that allowable costs include:

• Conveyancing fees: Legal costs for both the initial purchase and the current sale.
• Stamp Duty Land Tax (SDLT): The tax paid when you originally purchased the property.
• Estate agent fees: The costs associated with marketing and selling the property.
• Capital improvements: The cost of major works that add value to the property, such as building an extension or installing a new conservatory. Note that general maintenance and repairs (like decorating or fixing a roof) are not allowable deductions.

If you are selling a second home or buy-to-let, ensuring your legal fees are highly competitive will help offset your final tax bill. Our conveyancing legal fees are a fully allowable deduction against your capital gain.

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What is Private Residence Relief (PRR)?

If the property was your main home for part of the time you owned it, you are entitled to Private Residence Relief (PRR). PRR reduces your taxable gain proportionately based on the time you lived there.

For example, if you owned a property for 10 years, lived in it for 5 years as your main residence, and rented it out for 5 years, you would typically only pay CGT on 50% of the gain. Furthermore, HMRC usually grants relief for the final 9 months of ownership regardless of how the property was used, provided it was your main residence at some point.

How and when to report to HMRC (The 60-Day Rule)

The rules for reporting and paying CGT on UK residential property changed significantly in recent years. You now have a strict deadline of just 60 days from the sale's completion date to report the gain and pay any tax due to HMRC.

Your conveyancing solicitor will not file this return on your behalf. You must calculate and submit a "UK Property Return" through your online HMRC Government Gateway account. Failure to meet the 60-day deadline will result in automatic financial penalties and interest charges on the outstanding tax.