When you sell your main home, generally you don’t have to pay capital gains tax (CGT) on any profits you make. But it’s worth knowing the exceptions to the rule, as well as when CGT does apply to property sales. Read on to find out more.
Capital gains tax (CGT) is a tax that you pay when you sell certain valuable items for more than you paid for them – in other words, you’ve made a gain on the sale. For example, if you bought a second home several years ago at £200,000 and sold it for £300,000, you’d pay a percentage of your £100,000 profit — or capital gain — to the government in CGT.
When you make money from selling a house or property, your CGT depends on whether you lived in the house and how long you lived there.
Each year, there’s a certain amount of profit you can make in capital gains that’s exempt from tax – more on this allowance below.
You may have to pay CGT if you make a profit (gain) when you sell property that’s not the home you live in, for example:
You don’t usually need to pay tax on gifts to your husband, wife, civil partner or a charity.
No. CGT generally applies when you make a profit from selling items that are worth more than £6,000, such as valuable art, and shares that are not kept within an ISA or PEP. If the price has gone up since you purchased an asset and you plan to sell it, you’ll typically pay CGT on the profit once you have used up your annual tax-free CGT allowance.
Yes. CGT does not apply when you sell your home if you meet the following criteria:
It doesn’t require you to do anything to get this exemption. You’ll automatically get a tax relief called “private residence relief”.
You’ll need to work out your gain to find out whether you need to pay CGT. The amount you pay is based on your gain (usually the difference between the amount you paid for your property and the amount you sold it for) and the tax rate that applies to you.
The CGT rate you pay depends on which tax bracket you come under, which depends on your annual income. You can see the rates on the HMRC website in the CGT section.
In some situations it’s better to use the market value of the property when working out your gain.
If your property isn’t exempt from CGT, there are ways to reduce the bill.
Most taxpayers tend to calculate their gains by deducting the purchase price from the selling price. In many cases, they forget that they can deduct any costs in buying or selling the property such as estate agents’ fees and solicitors’ fees, as well as any costs incurred that have added value to the property, such as an extension or garage improvements.
For example, let’s say that years ago you paid £100,000 for a house as an investment. Since then, you’ve made £15,000 in improvements, and sold the house for £200,000. In buying and selling, you paid a total of £5,000 in fees to solicitors and estate agents. In this case, when you sell the house, your capital gain will £80,000 (which is £100,000 minus the £20,000 spent on home improvements and fees). And you can also deduct your annual tax-free CGT allowance from that gain if you haven’t already used it up.
If you owned a home but only used it as your main residence for part of that time, when you sell it you can get tax relief for:
For example, you make a profit of £100,000 when you sell a home that you owned for 20 years. You lived in the whole property for 15 years and 9 months, then you let it out in full for 4 years and 3 months. You get private residence relief for the time you lived there (15 years and 9 months) plus the last 9 months you owned the property (even though you weren’t living in it), which totals 16 years and 6 months (or 16.5 years).
This means you get private residence relief for 16.5 of the years (82.5% of the time) that you owned the property. As a result, in this case you will only be taxed on 17.5%, or on £17,500, of your profits.
If during the ownership of your home, you rented out your home, or let out a portion of it, you could be liable to pay tax on portion that it was let out of when you sell the property.
However, if you can show that the property was genuinely your main residence for a period of time, you may may be able to claim letting relief, which will further reduce your CGT bill.
It’s important to note that you can’t claim private residence relief and letting relief for the same period. This means if you are letting the property out when you come to sell, the past 18 months qualify for private residence relief rather than letting relief.
The exact amount of private residence relief and letting relief you can get depends on the amount you sell the home for. However, it’s important to remember that having a single lodger – ie someone that lives in the home with you – doesn’t count as letting out your home, so you will be exempt from CGT.
Home ownership often comes with the headache of ultimately selling your home. By knowing more about the details of CGT, there are ways to get get tax relief and maximise the profits you make on your investment property.
| Response | |
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| Strongly agree | 42.64% |
| Somewhat agree | 34.21% |
| Neither agree nor disagree | 19.38% |
| Strongly disagree | 2.03% |
| Somewhat disagree | 1.74% |
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I am likely separating from my husband of seven years – we jointly own a home which we will likely sell. I would never be able to afford to buy another property even if I worked full time and was shared ownership. I have a small child with school commitments and need to stay in same village, but can’t afford to buy husband out of the current house. Can I decline capital made on the sale of our house or have my husband hold it? Or can I pass it to my mum? Am hoping then I could get help with rental by universal credit. I know it sounds silly, but having the capital in my name is a hindrance. I don’t want it. Thanks in advance.
Hi Amy,
Thanks for getting in touch with Finder. I hope all is well with you. :)
I’m sorry to hear about your situation. I know life can be so tough when things don’t go according to plan.
Regarding your question, if the law says that you need to pay capital gains tax, then you would need to pay this tax. However, you might check if you are qualified for tax exemption. You can read the criteria to get exempted above this page, under the subheading, “Is my primary residence exempt from capital gains tax?”
Moreover, you have the choice to let other people pay for the tax given they agree to do so. You may want to discuss this with your mum or husband.
Finally, please consider speaking to a tax specialist to know more about your options as well as other things you can do to decrease the impact of CGT.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
I bought a restaurant in 1993 with a flat above, which I lived in. I paid £105,000 for the freehold. I sold the lease in 2000 and rented the whole property until 2017 when the tenant handed the lease back. In January of this year (2019) I sold the whole property for £415,000 I plan on buying property with this. My question is do I pay CGT if I reinvest in property? Thank you I look forward to your answer
Hi Larry,
Thanks for getting in touch with finder. I hope all is well with you. :)
I understand you want to know whether you would be able to avoid CGT when selling a property and using the profit to buy the same kind of property. Typically, based on the information you mentioned, you would most likely pay CGT. Upon checking, the UK does not have something equivalent to 1031 exchange law of the US.
Please note that tax and property laws can be very complicated. For this reason, it would be a good idea to directly get in touch with a professional to know the exact detail of your CGT.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
I have owned my 1 bedroom flat for 14 years. I bought it for £250,000. 4 years ago, when I met my wife, we bought a new house and moved in to that together. At that point we had the flat valued (£450,000) and transferred my flat into joint ownership. We then rented it out for 3 years, and have recently sold it for £450,000. I have calculated my CGT based on my ownership of the flat over the entire period, that it was my main residence for 10 of those 14 years, and I can claim 18 months of PRR and have attributed all purchase costs and sale proceeds to myself. However, I am wodering whether I need to do a different calcualtion that invovled my wife being liable for some or all of the capital gains. Can you help?
Hi Paul,
Thank you for reaching out to finder.
Since tax laws can be complicated as well as the scenario you have provided, it would be a good idea to speak to a tax specialist or visit your tax office to obtain a more specific answer. They may ask you additional questions to get a better idea as to how much you would need to pay. There are also online calculators available in computing for your Capital Gains Tax for your use.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Cheers,
Reggie
If I move into a property that I originally inherited as a buy to let property (and continued to let for a number of years) is there a point at which I will not need to pay CGT if I sell it? Thanks!
Hi Sarah,
Thanks for getting in touch with finder. I hope all is well with you. :)
If you are living in the property for at least two years before you sell it, you might be able to lower your CGT even if you are renting it out. Since tax laws can be complicated, it would be a good idea to speak to a tax specialist or visit your tax office to obtain a more specific answer.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
Hi, I bought a flat in April 2006 under buy to let mortgage. I am selling my property and the completion will take place this month. I never ever lived into the property. The property is rented out throughout my ownership. I am just wondering, can I claim letting relief from CGT?
Hi Rezaul,
Thank you for getting in touch with finder.
As per this government page on selling house, Letting Relief doesn’t cover any proportion of the chargeable gain you make while your home is empty.
Since it’s uncertain on how the rules apply to you, it is best to call the Capital Gains Tax helpline.
I hope this helps.
Please feel free to reach out to us if you have any other enquiries.
Thank you and have a wonderful day!
Cheers,
Jeni