When Capital Gains Tax applies to a property sale

If a property has been your only home for the whole time you owned it, Private Residence Relief normally wipes out any Capital Gains Tax (CGT). There is also a final nine-month exemption covering the last nine months of ownership even if you had already moved out — extended to 36 months if you moved into a care home or qualified under certain disability rules. Things get more interesting when the property is not your main home. A rental flat, a second home, a holiday cottage, a plot of land or a commercial building all sit outside the relief, and the gain is likely to be taxable.

It is also worth knowing that:

• Letting relief, once a generous cushion for landlords, now only applies if you shared the property with your tenant, and is capped at £40,000.
• Transfers between spouses or civil partners living together are treated as no gain, no loss — the receiving partner simply inherits the original cost.
• Assets are revalued for CGT on death, so inheriting a property normally resets the base cost to the probate value.
• Gifts count as disposals at market value, even when no money changes hands.

Working out the gain: costs you can subtract

Your gain is the sale price, less the costs of buying, improving and selling. HMRC does not allow general repairs or maintenance, but it does allow genuine capital improvements that still add value when you sell. Getting this distinction wrong is one of the most common reasons people pay more tax than they need to.

Allowable costs typically include:

• The original purchase price and any later acquisition costs.
• Stamp Duty Land Tax paid on the purchase.
• Conveyancing and solicitors' fees at both ends of the ownership.
• Surveyor, valuation and auctioneer fees.
• Estate agent commission and advertising costs on the sale.
• Capital improvements — an extension, loft conversion, damp-proofing as a project, or a new heating system where it upgrades rather than merely restores.
• Costs of establishing or defending your legal title to the property.

Not allowable: mortgage interest, letting agent fees during ownership, insurance, council tax, routine decorating, or swapping a broken boiler for a like-for-like replacement.

The numbers: rates, allowance and the income link

For residential property disposals, CGT is charged at 18% where the gain falls within your basic rate band and 24% on anything above it. The annual exempt amount is £3,000 per person, and unused allowance cannot be carried forward. Gains sit on top of your taxable income, so a sizable gain can push you into a higher band even if your salary is modest. Scottish taxpayers use the UK basic rate band for this calculation rather than the Scottish income tax bands, because CGT is a reserved tax.

Losses matter too. A loss on another property or on shares in the same tax year can be set against the gain. Unused losses carry forward indefinitely, but they must be reported to HMRC within four years of the end of the tax year in which they arose.

Reporting and paying: the 60-day rule

Here is the part that catches people out. If you sell UK residential property and a gain arises, you must report it and pay the estimated tax within 60 days of completion. That is 60 calendar days, not the usual 31 January rhythm of self assessment. Missing it triggers penalties and interest, and you still have to include the disposal on your tax return.

The 60-day return is not needed where Private Residence Relief covers the whole gain, or where the proceeds do not exceed four times the annual exempt amount. If you do file, you deduct your allowable costs and allowance on the return and pay what is due; any difference is then settled through self assessment.

Commercial property and land disposals do not use the 60-day service. They go through self assessment and are paid by 31 January following the end of the tax year.

Record keeping that saves you money

You cannot claim what you cannot prove. HMRC can enquire into a return years later, and missing paperwork is the single most common reason people overpay.

• Keep the completion statement, contract and Land Registry title from the purchase.
• Keep every invoice for capital improvements, with dates and amounts.
• Keep the sale completion statement, agent's invoice and legal fees.
• Record any periods the property was not your main home, plus evidence of which home you elected as your main residence.
• Store everything digitally as well as on paper — scans are accepted.
• As a rule of thumb, keep property records for at least six years after the tax year of sale, and ideally for as long as you own the asset.

Sensible planning before you sell

Timing and ownership both matter. Because each person has their own annual exempt amount and their own basic rate band, a gain split between spouses can be taxed far more gently than the same gain in one name alone — and transfers between spouses are free of CGT. Selling in a year when your other income is lower can also keep more of the gain in the 18% band. If you have lived in a property for some periods and let it out for others, work through the reliefs before you exchange contracts, not after. And if a sale is on the horizon, gather your cost records now, while you can still remember what that extension cost a decade ago and where the receipt went.