Calculating CGT on Property

If you sell a residential property in the UK that is not your main home (such as a buy-to-let investment or a holiday home), you may need to pay Capital Gains Tax (CGT). The calculation is based strictly on your net profit, not the total transaction value of the sale.

Step 1: Calculate Your Cost Basis

Your cost basis is the total aggregate amount spent on acquiring, legally protecting, and structurally improving the asset.

This includes:

• The original purchase price.
• Stamp Duty Land Tax (SDLT).
• Legal fees, surveyor charges, and estate agent fees incurred during the initial buy.
• Eligible capital improvements that enhance the property's long-term value (such as a structural extension, loft conversion, or major electrical renovation).

General maintenance or decorating costs (like painting or boiler servicing) are classified as revenue repairs and cannot be included in your cost basis.

Step 2: Calculate Your Gain

To find your initial chargeable gain, subtract your total accumulated cost basis from the final gross sale price.

$$\text{Gross Sale Price} - \text{Total Cost Basis} = \text{Chargeable Capital Gain}$$

Step 3: Deduct the Annual Exempt Amount

You can reduce your total gain by applying your personal annual tax-free CGT exemption. For the current 2026/27 tax year, this individual allowance is locked at £3,000.

If the property is owned jointly with a spouse or civil partner, you can combine your allocations to shield up to £6,000 of the profit from tax. Subtracting this allowance gives you your final taxable gain.

Step 4: Apply Residential CGT Rates

The Capital Gains Tax rates applied to residential property sales are:

• 18% for basic rate taxpayers.
• 24% for higher and additional rate taxpayers.

To determine which bracket you fall into, your calculated taxable gain is added directly on top of your existing taxable income for the year. Any portion of the gain that sits beneath the higher-rate threshold (£50,270) is taxed at 18%, while any portion pushed over the threshold is taxed at 24%. Because property gains are usually quite large, they frequently push basic rate earners into the higher rate category.

The 60-Day Reporting and Payment Rule

If you sell a UK residential property and have a CGT liability to clear, you face a strict timeline. You must report the disposal to HMRC and pay the estimated tax due within 60 days of the legal completion date.

This digital declaration must be handled independently via your online HMRC Capital Gains Tax on Property Account. It is completely separate from your annual Self Assessment return, though the transaction must still be formally declared on your tax return at the end of the year.

Worked Example for 2026/27

You sell a buy-to-let property for £300,000.

• You originally bought it for £200,000.
• You spent £20,000 on an extension and paid £5,000 in acquisition legal fees.
• Your Total Cost Basis: £225,000 (£200,000 + £20,000 + £5,000).
• Your Chargeable Gain: £75,000 (£300,000 sale price minus £225,000 cost basis).
• Deducting the Allowance: Gross Gain of £75,000 minus the £3,000 allowance leaves a final taxable gain of £72,000.

If you are a higher-rate taxpayer, your final 24% CGT bill would equal £17,280, which must be declared and paid within 60 days of completion.

Key Points to Remember

• CGT is paid only on your net profit after deducting purchase costs, selling costs, and capital improvements.
• The individual tax-free allowance is capped at £3,000 for the 2026/27 tax year.
• Residential property gains are taxed at flat rates of either 18% or 24% depending on your total annual income.
• You have a strict 60-day window from completion to report the sale and clear the tax balance with HMRC.