Capital gains tax when you sell a property

GOV.UK gives buy-to-let property, business premises, land and inherited property as examples of sales where you may have to pay capital gains tax on a profit. Your own home is usually exempt through private residence relief, which applies automatically if all of these are true:

• you have one home and have lived in it as your main home for all the time you have owned it
• you have not let part of it out, although a lodger does not count
• you have not used part of it exclusively for business
• the grounds, including all buildings, are less than 5,000 square metres
• you did not buy it just to make a gain

Gifts work differently from sales. You do not usually pay tax when you give property to your husband, wife or civil partner, or to a charity, but a gift to anyone else, including your children, is normally treated as if it had been sold at its market value.

Your gain is usually the difference between what you paid for the property and what you got when you sold it. In some cases you use the market value instead of the actual price, for example where the property was a gift, where you sold it cheaply to help the buyer, where you inherited it and do not know the inheritance tax value, or where you owned it before April 1982.

You can then deduct the costs of buying, selling or improving the property. GOV.UK names estate agents' and solicitors' fees, and improvement works such as an extension. Normal maintenance, such as decorating, does not count, which mirrors the line between repairs and improvements that landlords already draw for income tax. Keeping invoices that show which work was an improvement makes this much easier at the point of sale. Our guide on how rental income is taxed covers that side of things.

Each individual has an annual exempt amount, the tax-free allowance, which is deducted from their total gains for the year. Higher and additional rate taxpayers then pay 24% on what is left. For a basic rate taxpayer, GOV.UK's method is to add the gain left after the allowance to your taxable income: the part that falls within the basic rate band is taxed at 18%, and any part above it at 24%. A large gain can therefore be taxed partly at each rate.

Many landlords started out by letting a flat or house they once lived in. If that is you, private residence relief still covers the time you lived there as your main home, and GOV.UK also gives relief for the last 9 months you owned it, even if you were not living there at the time. Capital gains tax is then worked out on the rest of the gain.

Letting relief is narrow. It is only available if you lived in the home at the same time as your tenants. Where it applies, it is the lowest of £40,000, the amount of private residence relief you received, and the gain you made while letting out part of your home.

Selling UK residential property comes with its own deadline: any capital gains tax has to be reported and paid within 60 days of the sale completing. That is a much shorter timescale than the self assessment deadlines most landlords are used to, and it runs from completion rather than exchange. UK residents do not need to make this report if their total gains for the year are below the tax-free allowance.

Because the deadline is tight, it is sensible to gather your purchase documents, improvement invoices and sale costs before completion. If you are selling a buy-to-let and would like someone to check the calculation, our page on accountants for landlords explains what that work involves, and our landlord accountant fees guide shows what providers publish for it. You can also send us an enquiry through our contact page, and where we can, we will put you in touch with a local accountant.