In this brief guide, we are going to discuss capital gains tax on property, when you pay CGT and when you can claim relief.

Capital gains tax on property

You will have to pay capital gains tax on property if you dispose of (sell) the property and this isn’t your main residence. For example:

This could be your place of work

A buy to let investment

A holiday home

Property you inherited

Land

There are various ways to look at capital gains tax on property based on the below:

If it is a business property

If you are selling the property overseas

If you are a non-Uk resident

Capital gains tax on a business property

You may be able to asses some tax relief if you sell property or assets that you use for business purposes. Business tax relief will help you reduce your capital gains tax liability.

If you are a sole trader you won’t have to pay capital gains tax if your main business is to buy and sell property instead you will pay income tax.

If you are a limited company and your main business is to buy and sell property then you will pay corporation tax rather than capital gains tax on property. 

However, if you dispose of a single residential property worth more than £2m there are special rules which you must follow when considering capital gains tax.

Capital gains tax on overseas property

If you are selling an overseas property then you will still have to pay capital gains tax as well as any local taxes (you may be able to claim tax relief in the UK if you are taxed twice) in the place you dispose of the asset as long as you are a UK resident.

There are special rules if you are a UK resident but you are domiciled abroad.

Capital gains tax if you are a non-resident

If you are a non-resident of the UK you may have to pay capital gains tax on property only if you to return to the UK within 5 years of leaving.

How to work out your capital gains tax on property

You pay capital gains tax on the difference between what you paid for the property and what you sold it for.

To know how much capital gains tax you need to pay on a property you will have to work this out or speak to a suitable tax advisor.

Jointly owned property

If you jointly own a property then you will only have to pay capital gains tax on the share which you own.

Using the market value

There are some situations where you may have to calculate the capital gains tax on the property using the market value of the property rather than what you sold it for.

You will need to use the market value if: 

You sold the property for less than it was worth to help the buyer.

The property was a gift. There are different rules if you gifted it to a charity, civil partner or your spouse.

You inherited the property but do not know the inheritance tax value

You owned the property before April 1982

When calculating what your capital gains tax on the property is you will need to use different rules depending on:

If you live abroad

You sell a lease

You sell part of your land

Your property is compulsorily purchased

When to deduct costs from the capital gains tax

You may be able to deduct costs from capital gains tax on the property if you incurred costs when buying, improving the property or selling the property. The costs you can deduct include but are not limited to:

Renovation costs such as an extension. You won’t be able to deduce normal maintenance costs such as painting or decorating.

Estate agents and solicitor fees.

When you don’t pay capital gains tax on property

The only times you won’t have to pay capital gains tax on property aside from when it is your residential home is if you gift the property to your wife, a civil partner, a charity or your husband.

You may also not have to pay capital gains on property if the property was being occupied by a dependant of yours such as your children or other dependent relief. You should read more about private residence relief to learn more about this.

You may also be able to claim business tax relief if the property is a business.

Capital gains tax on property relief

In short, the tax reliefs you can claim from capital gains include:

Business assets

Your residential home

Your homes which are occupied by a dependant relative via private residence relief

Capital Gains tax calculator

You can use a capital gains tax calculator to determine if you need to report and pay capital gains tax on a property.

FAQs: capital gains tax on property

How do I avoid paying capital gains tax on property?

There are no real ways to avoid paying capital gains tax on a property if you have a capital gains tax liability A qualified tax adviser may be able to provide you with more suitable advice.

How long do I need to live in a house to avoid capital gains tax?

You will usually need to live in a property for more than 12 months to avoid capital gains tax but you may be able to avoid capital gains tax if you have lived there for shorter and there have been successful cases of this but the longer you live in the property, the better your chances will be to avoid capital gains tax.

How much is capital gains tax on property?

“Capital gains tax on property: basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional rate taxpayers pay 28%. With other assets, the basic-rate of CGT is 10%, and the higher-rate is 20%.”

Do I have to pay capital gains tax on sale of a house?

Yes, you may have to pay capital gains tax on the sale of a house. This is usually not the case if the house is your private residence.

In this brief guide, we discussed capital gains tax on property. If you have any comments or questions please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.