When you buy a property, there is a good chance it will increase in value over time. But when selling a property in the UK that is not your main residence, you will usually pay Capital Gains Tax based on the difference between the price you bought the property for and the sale price.
Land Registry figures show that average UK house prices increased over the past ten years from £191,855 in October 2014 to £292,059 in October 2024. Across the London Borough of Merton, average selling prices rose from £449,145 to £579,347 over the same period.
Booming house prices mean significant capital gains for buy-to-let investors who decide to sell their properties. Capital Gains Tax (CGT) is payable on the sale of buy-to-let property and second homes.
CGT is calculated as a percentage, therefore CGT calculations will be higher for higher-value buy-to-let properties and second homes that have increased in value, than for lower-value properties. In areas with high house prices, such as Coombe and Wimbledon, you should calculate your CGT bill before deciding whether to sell.
To give you an idea, average house prices in Wimbledon Village are £1,396,828 for the 12 months leading up to January 2024; in Wimbledon Park, the average is £1,156,988. If you bought your property in these areas several years ago, there has likely been a significant increase in house prices.
In this article, we explain the rules surrounding selling property and Capital Gains Tax. Read on to find out whether you need to pay CGT when you sell your property and calculate your tax amount.
Capital Gains Tax is a tax on the profit you earn when you sell an asset that has increased in value. It is payable on property that is not your primary residence, for example, buy-to-let properties or a second home.
You will not usually need to pay this tax if the property you are selling is your main home.
For property sales, CGT is now charged at 18% for basic rate taxpayers and 24% for higher rate taxpayers. These tax rates are payable on any profit earned on the property minus your CGT allowance.
Given the increases in property value in Wimbledon Village, many sellers will exceed the basic rate band threshold. As a result, many sellers who are otherwise basic rate taxpayers for income tax, end up paying the additional rate and being taxed at 24%. even if the taxpayer is a basic rate payer for income tax.
All taxpayers have an annual CGT allowance, meaning they can earn a certain amount tax-free. The Capital Gains allowance for the tax year 2023 to 2024 was £6,000, but this has been reduced to £3,000 for the 2024 to 2025 tax year. If the property is jointly owned with your spouse, you can combine your CGT allowances for greater tax relief when you sell a home.
Capital Gains Tax is payable on the profit (gain) you made from selling your property.
Calculate the gain by subtracting the amount you originally bought the property for from the sale price.
HRMC allows vendors to deduct both buying and selling costs. This includes estate agent and legal fees plus any stamp duty paid when purchasing the rental property. The cost of improvement works can also be deducted. This includes extensions but not maintenance costs such as decorating.
You will pay CGT on the combined gains over and above your tax-free allowance.
You must report and pay any Capital Gains Tax on UK property within 60 days of completion. This can be done online via gov.uk, or you can request a paper form from HMRC. You will need to provide details of the property, completion date, your costs, and the purchase price and selling price.
If HRMC decides that a property is not your main home, you must pay CGT.
If you use more than one home, you can nominate which one is your primary residence; it makes sense to choose the property you expect will make the biggest gain when you sell it.
You will also pay Capital Gains Tax if you sell a second property abroad but you’re based in the UK, or move back within 5 years. If you are a dual resident, you can consult gov.uk for clarification.
Married couples and civil partners can only have one main residence between them. Unmarried couples can each nominate a different home.
Landlords pay Capital Gains Tax after selling, if they have made capital gains. If your buy-to-let property has risen in value by more than your capital gains allowance, you will have to pay CGT – even if it is your only property. However, you can usually deduct certain costs, and other forms of relief may lower your bill if you qualify.
If you give property to your child as a gift, you will still have to pay Capital Gains Tax on it as though you have sold it. In this instance, you will use the property’s market value instead of the sale price, then deduct the same costs to determine your total gains.
The rules for Capital Gains Tax on inherited property are slightly different – unlike your Inheritance Tax bill, which is paid when you inherit, you may not pay CGT until later, or at all. If you sell a property you have inherited without making it your own home, you will pay CGT based on the increase in value between the date you acquired the property and the date when you sold, minus any selling costs.
Property given to a spouse, civil partner or charity is exempt from CGT.
To reduce your CGT bill, you must understand all the tax relief options and tax efficiencies you are entitled to. These are some of the ways to reduce your CGT bill:
When working out your CGT bill, you can deduct the costs of buying and selling property from your gain. For example:
However, you are not allowed to deduct costs associated with the maintenance of your home or interest paid on your mortgage.
You can also offset any losses you make when selling other assets – claim for your losses by including them on your tax return. Losses can be claimed for up to four years after they were incurred.
If you are the sole owner of the property, you can share ownership with your spouse, which will double your CGT allowance when you come to sell the property.
If you are a higher-rated taxpayer and your spouse isn’t, you could reduce by CGT bill by transferring all or part of the property into their name to take advantage of their lower Capital Gains Tax rates.
If you have made other Capital Gains in the current tax year, consider deferring the sale until the next tax year so you can use your full allowance.
If you have more than one property, you can nominate which one will be tax-free; it doesn’t need to be where you spend most of your time. If you can, nominate the property you expect will make the largest gain when you come to sell your home.
You have two years from when you get a new home to nominate it as your main residence.
If you used to live in the residential property before renting it out, you can claim Private Residence Relief for the time you lived there, plus the last nine months you owned the home.
For example, you make a gain of £200,000 on selling a home you owned for ten years. You lived in the house for five years and rented it out for five years. You can claim Private Residence Relief for the time you lived in the house plus nine months – 57.5% of the time. You will not pay tax on 57.5% of the gain (£115,000). You will pay GCT on the remaining £85,000 of the gain.
If you lived in your home simultaneously with your tenants, you might be able to claim Letting Relief, reducing your capital gains tax bill.
Yes, in some cases, you may be able to use your allowance and deduct enough costs to avoid Capital Gains Tax altogether. For, example, you may avoid paying CGT altogether when:
However, you must consult a tax expert to ensure you get the right advice and pay anything you owe.
The current rate of 18% (24% for higher and additional rate payers) came into effect on 30 October 2024 and is set to stay the same for property sales in 2025. The government has put forward a proposal to increase rates of Capital Gains Tax this year, but residential property is not affected.
Don’t hesitate to get in touch if you have questions about selling property and Capital Gains Tax. If you plan to sell your buy-to-let property in Wimbledon, South Wimbledon, Roehampton or New Malden then Robert Holmes can help. Contact us today.
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