Capital Gains Tax on Selling Property UK

When a UK residential property is sold at a gain and CGT applies, the gain must be reported to HMRC and any tax due paid within 60 days of completion, using the Capital Gains Tax on UK property account. This is separate from the self-assessment tax return, though the disposal must also be reported on the return for the relevant tax year. The annual exempt amount (currently GBP 3,000 for individuals) may be set against the gain. Allowable deductions include the original purchase price, stamp duty paid on purchase, legal fees, and the cost of qualifying improvements (but not maintenance or repairs). For properties that were a main home for part of the ownership period, Private Residence Relief may apply to that portion, and the final 9 months of ownership are typically covered regardless.

Common situations include: selling a buy-to-let property, selling a second home or holiday home, selling a property that was previously a main residence but is no longer, selling an inherited property, selling a property after a separation or divorce, and letting out a former main home.

Capital gains tax on property disposals is governed by the Taxation of Chargeable Gains Act 1992 (TCGA). Section 222 provides Private Residence Relief, exempting gains on a dwelling-house that has been the individual's only or main residence throughout the period of ownership. Section 223 extends the relief to the final period of ownership (currently 9 months) regardless of whether the property was occupied as the main residence during that time. Sections 222 to 226 cover various aspects of the relief including lettings relief and the treatment of grounds and gardens. The 60-day reporting and payment requirement was introduced by Schedule 2 of the Finance Act 2019. The annual exempt amount is set under Section 3 of TCGA 1992. CGT rates for residential property are set by Section 4 of TCGA 1992 as amended by subsequent Finance Acts.

People selling a property often consider whether Private Residence Relief applies in full or in part, how to calculate the gain including allowable deductions, the 60-day reporting deadline and the need to register for the CGT on UK property account, whether the annual exempt amount is available, the interaction between CGT and their income tax band for determining the applicable rate, and whether any reliefs such as lettings relief might reduce the liability. Some people consider the timing of the sale relative to the tax year to make best use of annual exemptions. Professional advice is often sought for complex situations such as inherited properties or partial occupation.

Common mistakes include: missing the 60-day reporting deadline which triggers automatic penalties similar to self-assessment, not claiming all allowable deductions such as legal fees and stamp duty from the original purchase, assuming that Private Residence Relief applies automatically when the property has not been the main home throughout, not keeping records of improvement costs over the years, and forgetting that the gain may push income into a higher tax band affecting the CGT rate.