About Capital Gains Tax On Investment Property In The UK

In this article, we provide information about Capital Gains Tax (CGT) of property in the UK, including who is responsible for paying it and how much tax you may need to pay based on your earnings.

CGT can come as a surprise to many individuals. It applies to profits earned from the sale of assets that appreciate over time, such as cars, art, and in this case property. Although CGT is not always incurred when selling your primary residence, you will always have to pay capital gains tax on investment property, such as when selling a buy-to-let property or a business premise.

What is Capital Gains Tax?

CGT is generally levied on any profits made through the resale of an asset. What this means is that if you, for example, purchased a property in 2010 for £200,000 and sold it in 2015 for £300,000 you would pay tax on the £100,000 profits garnered in that sale.

Capital Gains Tax on Investment Property UK: Rates

Basic-rate taxpayers pay 18% on gains they make when selling residential property, while higher and additional rate taxpayers pay 24%. Bear in mind that any capital gains will be included when working out individuals’ tax rates for the year, so some gains for basic-rate taxpayers will be taxable initially at 18% and 24% thereafter.

Capital gains on investment property that is officially classed as commercial property is taxed at 18% and 24% for basic and higher/additional rate taxpayers respectively. 

Learn more about tax on rental income.

Annual Capital Gain Tax Exemption

Individuals have a CGT annual exemption, meaning gains up to the annual exemption are not taxable. The CGT annual exemption is £3,000 in the current (2024/25) tax year.

What is Deductible From The Taxable Capital Gain?

The following costs can be deducted from the gain to reduce the amount that gets charged to CGT:

• Costs associated with selling the property – such as estate agent and solicitors’ fees
• Costs associated with purchasing the property – such as Stamp Duty, estate agents’ fees, and solicitors’ fees
• Improvement and enhancement expenditure

Costs involved with improving or enhancing the property, such as paying for an extension or upgrading the kitchen, can be taken into account when working out the taxable gain.

Maintenance costs and mortgage costs are not deductible from any capital gains, although these can be used to reduce the income tax payable on any rental income.

Read our article on tax-deductible expenses from rental income for more information.

Capital Gains Tax Reliefs

When it comes to capital gains tax on property, there are two main reliefs available. These are Principal Private Residence (PPR) relief and lettings relief.

PPR Relief

Principal Private Residence (PPR) relief is the relief that enables individuals to sell their homes without having to pay capital gains tax (CGT). To claim the relief, the property being sold must be the taxpayer’s main residence.

If a taxpayer sells their home and it was not their main residence for the entire time they owned the property, then they may have to pay some CGT on the sale proceeds. This could be the case if, for example, an individual owned two properties and spent most of their time in one rather than the other, or if they moved out of their home to develop it. In such cases, CGT is calculated by reference to the proportion of time that the property was not the taxpayer’s main residence.

Where a property has been an individual’s main residence at some point, the final 9 months of ownership is deemed to be a period of occupation regardless of whether the property was occupied in those final 9 months.

There are additional reliefs available for certain periods where an individual moves out of their home for certain reasons and then returns at a later date.

Lettings Relief

If you lived in your home at the same time as your tenants, you may qualify for Letting Relief on the gains you make when you sell the property.

Essentially, lettings relief is a version of PPR relief that takes into account you using a part of your property as a residential let. Lettings relief only applies in circumstances where the owner of the property is in “shared-occupancy” with a tenant. You’ll need to work out what proportion of your home you lived in.

Lettings relief is capped, depending on the amount of capital gain and PPR relief you claim.

Final Considerations: Capital Gains Tax on Investment Property

Beyond capital gains tax on investment property, there are several other tax considerations you need consider when dealing with buy to let properties. These include:

• Stamp Duty Land Tax. When you purchase a property in the UK valued above a certain amount you will be required to pay stamp duty. UK stamp duty is a one-off cost at the time of purchase and you pay the same stamp duty on a second home as you would on a buy to let investment property.
• Council Tax. As a landlord, you will only pay council tax for your properties when they are vacant. Generally, it is the tenant’s responsibility. You can have a claim council tax as an allowable expense when you complete your self-assessment tax return.
• Rental Income Tax. All income above the minimum taxable income threshold is taxable at your current income tax rate.

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We hope you found this blog interesting! However, we are not financial professionals, and as such the information in this blog is intended as general information and not advice. Nothing in this blog should be used as a substitute for competent legal and/or other advice from a licensed professional.