Thinking of selling your property?
It’s a big decision, and one of the questions that can cause a lot of sleepless nights is: “Will I have to pay tax on the profit?”
The fear of a surprise tax bill is real. But let me put your mind at ease.
For most people selling their main family home, the answer is a straightforward no. You won’t pay Capital Gains Tax (CGT).
And here’s the crucial bit that most people get wrong.
It’s less about how long you’ve lived there and more about whether it was your main home.
In this detailed guide, we’ll break down exactly what CGT is, how the ‘main home’ exemption works, the specific situations where you might have to pay, and how to navigate a sale simply and quickly if you’re facing a complex situation.
What is Capital Gains Tax (CGT)?
Let’s start with the basics.
Capital Gains Tax is a tax on the ‘gain’ or ‘profit’ you make when you ‘dispose of’ an asset that has increased in value. “Disposing” usually means selling, but it can also include gifting a property or swapping it for something else.
Property is one of the key assets that can be subject to CGT.
But how is this ‘gain’ actually calculated? It’s simpler than you might think.
Sale Price – Purchase Price – Allowable Costs = Total Gain
What are “Allowable Costs”?
This is an important part of the equation. You can deduct certain costs from your gain, which reduces your potential tax bill.
These include:
- Buying and Selling Costs: Fees for solicitors and estate agents.
- Stamp Duty Land Tax (SDLT): The tax you paid when you originally bought the property.
- Costs of Improvement: This is for work that adds value to the property, not maintenance. Think of a loft conversion, a new extension, or installing a brand-new kitchen.
- Professional Fees: Costs for surveys or valuations.
What doesn’t count? General upkeep. Things like redecorating, repairing a broken fence, or replacing a boiler are considered maintenance, not improvements, so you can’t deduct them.
But here’s the brilliant news. You don’t pay tax on the entire gain. You have a tax-free allowance, and more importantly, most property sales are completely exempt.
The Key to Avoiding CGT: Private Residence Relief (PRR)
This is the rule that really matters.
Private Residence Relief (PRR) is the tax rule that makes most home sales in the UK completely tax-free.
The main condition? The property must have been your only or main residence at some point while you owned it.
Now, let’s bust a common myth right here.
There is no minimum time you have to live in a property to claim PRR.
That’s right. If you buy a house, move in, and make it your genuine main home for any period, you are eligible for relief for that time. It’s not about hitting some magic number of years. It’s about the quality and intention of your occupation, not the quantity of time.
What Counts as Your Main Residence?
If you only own one home, it’s simple – that’s your main residence. But if you own more than one, say a flat in the city and a house in the country, you need to determine which one is your main residence.
HMRC looks at the evidence, such as:
- Where you are registered on the electoral roll.
- Which address is used for your bank accounts, car registration, and correspondence.
- Where your family (especially children, if they live with you) spends their time.
- Where your personal belongings are kept.
If you have two or more homes, you can nominate one as your main residence for tax purposes. You have two years from the date you start having more than one home to make this nomination to HMRC. It’s a powerful tool that can save you a lot of money down the line.
The Final Period Exemption
Here’s another crucial detail. You automatically get relief for the last 9 months of ownership, regardless of whether you were living there. This applies as long as the property was your main home at some point. This is designed to help people who have moved into a new home but haven’t yet sold their old one.
When You Might Have to Pay CGT on a Property
While most people selling their main home are in the clear, there are some common situations where you might face a CGT bill. Let’s explore these in more detail.
Selling a Buy-to-Let Property
This is the most common scenario for CGT. If you bought a property specifically to rent out, it was never your main home. That means PRR doesn’t apply, and any profit you make on the sale is taxable.
You may have heard of “Lettings Relief,” but be careful. The rules changed drastically in April 2020. Now, this relief is only available if you were living in the property at the same time as your tenant. For the vast majority of landlords, it no longer applies.
Selling a Second Home or Holiday Home
Got a cottage in the country or a flat by the sea? Similar to a buy-to-let, if this property isn’t your main residence (and you haven’t nominated it as such), any gain when you sell it will be subject to CGT.
Deemed Occupation
If any of the above apply to you, but the property was also once your main residence at one point in time, then “deemed occupation” rules may apply.
These rules mean you did not live in the property for the entire period of ownership, so you still qualify for partial relief. The gain is time-apportioned, so you only pay CGT on the portion of time in which you owned the property but it was not your main residence. You don’t pay CGT for the time period when you lived there.
So, if you’re asking “how long do I need to live in the property to avoid CGT”, the answer is 100% if you want to avoid 100% CGT. Any less time will be time-apportioned accordingly.
Selling an Inherited Property
This is a particularly important area, and it can be an emotional minefield.
There’s no CGT when you inherit the property itself. However, CGT is charged on any increase in value from the date of death of the person who left it to you, to the date you sell it. The value is based on the probate valuation at the time.
Unless you move into the property and make it your main home, PRR won’t apply.
So, assuming you move into the inherited property and make it your home until it is sold, then you won’t need to pay any CGT once it’s finally sold.
If you lived in the property for only part of your ownership period, the relief will be applied proportionally.
Selling an inherited property is often complicated. There’s frequent pressure to sell quickly to settle the estate or divide assets. If that’s your situation, we have a guide on selling an inherited property that can help.
If You Are Separating or Divorcing
This is a stressful enough time without worrying about tax. Thankfully, the rules have recently been made more helpful. As of April 2023, separating couples have up to three years after they move out to transfer or sell their share of the former marital home without incurring CGT. This gives you more breathing room to sort out your affairs.
Using Part of Your Home Exclusively for Business
Have you used a room exclusively for business? Not just a home office where you do your admin, but a dedicated space like a doctor’s surgery, a salon, or a workshop. If so, that portion of your property’s gain might not be covered by PRR.
How to Calculate Your CGT Bill: A Worked Example
Let’s make this real. Imagine you bought a flat for £150,000 to rent out. Ten years later, you sell it for £250,000.
- Calculate the Total Gain:
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- £250,000 (Sale Price) – £150,000 (Purchase Price) = £100,000 (Total Gain)
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- Deduct Allowable Costs:
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- Let’s say your solicitor and estate agent fees were £5,000, and you paid £2,000 in Stamp Duty.
- £100,000 – £7,000 = £93,000 (Gain after costs)
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- Deduct Your Annual Exemption:
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- For the 2024/25 tax year, the allowance is £3,000.
- £93,000 – £3,000 = £90,000 (Taxable Gain)
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- Apply the Tax Rate:
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- If you’re a higher-rate taxpayer, the rate is 24%.
- £90,000 x 24% = £21,600 (CGT to pay)
As you can see, it can add up to a significant amount. By the way, a lower rate tax payer would only pay 18% CGT instead of the 24% used in the calculation.
Pro Tip: Tax rules are complex. This is a simplified example. Always check the latest figures on the GOV.UK website or seek guidance from an independent source like MoneyHelper before making decisions.
Reporting and Paying
Here’s the final hurdle. CGT on UK residential property must be reported and paid to HMRC within 60 days of the sale completion. That’s not long.
The Simple Alternative: A Fast, Certain, and Stress-Free Sale
Understanding tax is one thing. Navigating the sale itself is another challenge entirely.
If you’re dealing with an inherited property, a second home, or just need to sell without the delays and uncertainty of the open market, there is a straightforward alternative.
We are Property Rescue. A specialist cash house buyer that guarantees to buy your property directly from you very quickly
No chains. No viewings. No uncertainty. No snowballing CGT.
Our process is designed to give you complete control. You get a guaranteed cash price, allowing you to manage your financial obligations with certainty. No last-minute price reductions and no buyers pulling out. Just a straightforward transaction that lets you plan ahead with confidence.
