- Capital Gains Tax on property: the basics
- Capital Gains Tax reliefs on property
- How to calculate capital gains and losses on property
Capital Gains Tax on property: the basics
You usually don't have to pay Capital Gains Tax when you sell, give away, exchange or otherwise dispose of your own home. But you may have to pay Capital Gains Tax when you sell or dispose of a piece of land or a property that's not your main home.
On this page:
- What is Capital Gains Tax?
- Typical types of property
- Working out Capital Gains Tax
- Reporting a gain or loss
- Selling your own home
- Selling or giving property to family
- Property trading
- Land and leases
- More useful links
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit or gain you make when you sell or otherwise ‘dispose of’ an asset.
You usually dispose of an asset when you cease to own it - for example if you sell it, give it away as a gift, transfer it to someone else or exchange it for something else.
For example if you make a gift of a second home to your children, you'll have to work out if there's any Capital Gains Tax to pay on the disposal of the property at that time.
In some cases you're treated as if you've disposed of an asset. For example a building has been destroyed and you've received a capital sum, such as an insurance payout, by way of compensation.
It's the gain you make - not the amount of money you receive for the asset - that's taxed.
Typical types of property
When you sell or otherwise dispose of property - such as a building, land or lease - you'll usually have to work out if there's any Capital Gains Tax to pay.
However, if you sell your main home you're usually entitled to Private Residence Relief, a tax relief that covers any gain made and means there's no tax to pay (see 'Selling your own home' further below).
Typical types of property include:
- a property that you've bought as an investment, for example a buy-to-let property
- a second home, for example a holiday home in the UK or overseas
- business premises, such as a shop or a factory
- land, such as agricultural land
There are some special rules for working out certain gains and losses on land - see the section on 'land and leases' below.
Working out Capital Gains Tax
To work out your Capital Gains Tax you'll need to look separately at each asset disposed of that's liable to Capital Gains Tax and in straightforward cases:
- Take the disposal proceeds (usually the amount received) and deduct your costs and tax reliefs to work out each gain or loss.
- Add together all of your gains for that tax year.
- Add together all of the losses you've made for that tax year.
- Deduct any allowable losses you've made that year from the gains to work out the overall gain or loss.
- If the overall gain is below the annual tax-free allowance (known as the ‘Annual Exempt Amount’), there's no Capital Gains Tax to pay. The Annual Exempt Amount for individuals is £9,600 for 2008-09 and £10,100 for 2009-10.
- If the overall gain is above the Annual Exempt Amount, you may be able to deduct unused losses from earlier years.
- If the overall gain is still above the Annual Exempt Amount, you deduct the Annual Exempt Amount and pay tax at 18 per cent on the balance.
If you've made a loss on a disposal you'll need to claim it in order to set it off against your gains. To find out more about this - and working out gains and losses - see the links below.
More on claiming and using losses
See a step-by-step guide to working out Capital Gains Tax
Reporting a gain or loss
Capital Gains Tax is paid through the Self Assessment system and will be calculated as part of your Self Assessment tax return.
If you haven't received a tax return, but think you need one, you should contact your Tax Office. You may face a penalty if you don't.
You should keep any records and information that might help you work out your capital gain or loss.
More on reporting gains and time limits
Selling your own home
You don't have to pay Capital Gains Tax when you sell or dispose of your own home, as long as you're entitled to full Private Residence Relief.
You must have used the property as your only or main residence throughout the time you've owned it. Certain other conditions must also be met.
Find out more about tax relief on your own home
Selling or giving property to family
If you sell, give or otherwise dispose of a property to your husband, wife or civil partner you don’t pay Capital Gains Tax as long as you've lived together for at least part of the tax year in which you made the disposal.
However, if your husband, wife or civil partner later sells or disposes of the property, they’ll have to work out the tax due. It's useful to keep a note of what the asset cost you, as your spouse or civil partner may need this to work out their Capital Gains Tax when they dispose of the asset.
If you sell, give or otherwise dispose of a property (that's not your main home) to any other family member - or to a spouse or civil partner that you haven't lived with during that tax year - you'll have to work out the gain or loss made and any Capital Gains Tax due.
If you give away your home, for example to a child, you don't have to pay Capital Gains Tax as long as you're entitled to full Private Residence Relief (see the first link below) but your child may have to pay Capital Gains Tax when they sell or dispose of it.
Find out more about tax relief on your own home
More about how to calculate capital gains on property
Property trading
If you're a sole trader or a partner in a partnership and your trade is in property, you'll pay Income Tax rather than Capital Gains Tax on any profits you make when you sell or otherwise dispose of property. This may include a one-off purchase and sale of a property. You usually have to pay any Income Tax due by completing a Self Assessment tax return.
It's different if the property trading business is carried on by a limited company - in which you may be a director or shareholder - any profits on properties disposed of form part of the total profits of the company on which it pays Corporation Tax.
Tax returns if you're self-employed or in a partnership
Land and leases
In many cases you work out the gain or loss when you dispose of land
in the same way as for other assets.
But there are some special rules for working out gains and losses if you:
- dispose of land that's been compulsorily purchased
- grant a lease
- assign or surrender a lease
You can find out more about these rules and see some examples in the
help sheet below.
Download the latest help sheet on land,
leases and Capital Gains Tax - Help Sheet 292 (PDF 79K)
