Understanding Capital Gains Tax
When you sell an investment property in the United Kingdom for more than you originally paid, you may need to pay Capital Gains Tax. It is applied to the profit you make from the sale, rather than the total sale price.
In simple terms, if you bought a property for £300,000 and sold it for £400,000, the profit of £100,000 is the part the tax applies to. The amount you pay depends on your overall income, the type of property you own, and any exemptions or reliefs you qualify for.
For investors, understanding how Capital Gains Tax works can make a real difference to the final return on your investment.
Capital Gains Tax Rates and Allowances for 2025
As of 2025, the Capital Gains Tax rates for residential property sales are as follows:
- Basic rate taxpayers: 18 per cent
- Higher rate or additional rate taxpayers: 28 per cent
These rates apply to profits made from buy-to-let properties, second homes, and other investment properties.
Annual Allowance
Every taxpayer has an annual exempt amount. In 2025, this stands at £12,300. This means the first £12,300 of your profit is free from Capital Gains Tax.
For example:
If you sell a property and make a gain of £30,000, only £17,700 would be taxed after applying the allowance. The rate that applies depends on your income bracket.
How to Calculate Your Capital Gain
Calculating your capital gain is straightforward once you know which costs can be deducted.
Here is a simple breakdown:
- Start with the sale price
This is the amount you received for the property, minus selling expenses such as estate agent and solicitor fees. - Deduct the purchase price
This includes the original purchase cost plus related expenses such as stamp duty and legal fees. - Subtract allowable costs
You can deduct money spent on improvements that added value to the property, such as extensions or renovations. Regular maintenance costs cannot be included.
Example:
- Sale price: £400,000
- Purchase price: £300,000
- Improvements: £20,000
- Selling costs: £5,000
Taxable gain: £75,000
You would then apply the annual exemption and pay tax at either 18 or 28 per cent, depending on your income level.
Common Reliefs and Exemptions
While Capital Gains Tax often applies to investment property, there are several reliefs that can reduce what you owe.
Private Residence Relief
If the property you are selling was once your main home, you may qualify for Private Residence Relief. This can reduce or even eliminate the tax due for the period you lived there.
Lettings Relief
If you lived in the property and later rented it out, you may be eligible for Lettings Relief. This can reduce your gain by up to £40,000 (or £80,000 for couples). The availability of this relief is now more limited, so it is worth checking the most recent guidance before selling.
Gifting and Inheritance
Gifting a property to your spouse or civil partner does not trigger Capital Gains Tax, as ownership simply transfers. However, gifts to other family members may still create a tax charge. Inherited property follows different rules, and Capital Gains Tax only applies if the person who inherits the property later sells it for a profit.
Ways to Reduce Your Capital Gains Tax
There are several strategies that can help lower your Capital Gains Tax bill when selling an investment property.
1. Choose the Right Time to Sell
If you can delay the sale until the start of a new tax year, you might be able to spread your profits across two periods. This gives you another annual exemption and can help reduce the overall tax amount.
2. Offset Gains with Losses
If you have made a loss on another investment, you can use it to offset your gain from a property sale. This is called loss relief and can reduce your overall taxable amount.
3. Use a Limited Company Structure
Many property investors now choose to buy and sell through a limited company. A company pays corporation tax on its profits, which is usually lower than personal Capital Gains Tax. This setup can also offer more control over how income is drawn, though it comes with added administrative costs.
4. Gift Property to a Spouse or Partner
Transferring a property to your spouse or civil partner can be an effective way to share ownership and make use of both partners’ tax allowances. Always seek advice before transferring, as rules differ for other relatives.
Capital Gains Tax for Non-Residents
Since 2015, non-residents who sell property in the United Kingdom are also required to pay Capital Gains Tax on the profit from the sale.
If you live abroad, you must report the sale to HMRC within 60 days of completion. You may be able to reduce your liability if your country has a double taxation agreement with the United Kingdom, which prevents you from being taxed twice on the same gain.
At Global Phoenix, we often work with overseas investors who are navigating these rules, helping them understand the reporting requirements and explore reliefs available to them.
Final Thoughts: Plan Ahead for a Better Outcome
Capital Gains Tax is an important part of property investment that often catches sellers off guard. The key is to plan ahead. Understanding your tax position early allows you to take advantage of available allowances and reliefs, and to time your sale in a way that benefits you financially.
At Global Phoenix, we help investors make informed decisions when buying and selling property. With the right advice, you can keep more of your profit and ensure your portfolio continues to grow efficiently.
Need Help with CGT Planning?
If you are considering selling an investment property and want to reduce your Capital Gains Tax bill, our team is here to help. We can guide you through the latest rules, calculate potential liabilities, and suggest the most effective strategies for your situation.
Contact us today to speak with one of our property investment specialists and plan your next move with confidence.