Capital gains tax on property

Your main home is usually exempt. Everything else has a 60-day clock attached.

Property produces the largest capital gains most people ever realise, and it comes with rules that don't apply to anything else — including a reporting deadline that catches people constantly.

Your main home

Private Residence Relief means the sale of your only or main home is generally free of capital gains tax entirely. For most people that's the whole story and nothing further is needed.

The relief covers the period you lived there as your main home, plus the final nine months of ownership regardless of whether you were living there. That final period exists so people aren't penalised for a slow sale or an overlap between homes.

Where it gets complicated:

Large grounds. The relief covers the house plus grounds up to half a hectare. Beyond that, the excess may be taxable.

Business use. A room used exclusively for business can lose relief on that proportion. Working from home doesn't trigger this, as long as the room isn't exclusively business use.

Letting part of it out. Renting a room while living there is usually fine under the rent-a-room rules. Letting the whole property for a period is not, and creates a taxable proportion.

More than one home. You can only have one main residence for relief purposes at a time. Where you genuinely have two, there's a window after acquiring the second in which you can elect which counts. The election has real value and a real deadline.

Periods of absence. Some absences count as if you'd been living there — working abroad, or being required to live elsewhere for work, within limits.

Second homes and buy-to-let

No relief. The full gain from acquisition to disposal is taxable, at 18% or 24% depending on where it falls against your income.

What you can deduct:

The original purchase price

Stamp duty, legal fees and survey costs on purchase

Estate agent and legal fees on sale

Capital improvements — an extension, a new conservatory, a first-time central heating installation

What you can't deduct: repairs and maintenance, redecoration, replacing something like for like, or mortgage interest. The distinction between an improvement and a repair matters a great deal and isn't always intuitive. A new kitchen replacing an old one is generally a repair; adding a kitchen where there wasn't one is an improvement.

Keep every receipt from the day you buy. Landlords who kept nothing routinely pay more tax than they needed to, simply because they can't evidence what they spent.

Properties that were once your home

Common where someone kept a house on after moving, or moved in with a partner and let the old place out.

Relief is apportioned by time. If you owned it for twenty years and lived in it for eight, roughly eight years plus the final nine months qualify for relief and the rest of the gain is taxable. The calculation is done in months.

Lettings relief used to extend this considerably, but it was restricted substantially in 2020 and now applies only where the owner shared occupancy with the tenant. Guidance written before then is misleading, and there's a lot of it still online.

The 60-day rule

This is the one that catches people.

A disposal of UK residential property producing a taxable gain must be reported to HMRC and the tax paid within 60 days of completion. Not by the following January. Not on your next tax return. Sixty days.

You report it through a UK Property Account on gov.uk, which has to be set up first — and setting it up takes time you may not have if you only discover the requirement on day 55.

Penalties start once the deadline passes and escalate. Interest runs on the tax.

The gain also goes on your Self Assessment return afterwards, with the payment already made credited against the final bill. So it's reported twice, which surprises people the first time.

Two practical points. Your conveyancer will not necessarily tell you about this — many don't, since it isn't part of the conveyancing. And if you're selling a property with a gain, work out roughly what the tax will be before completion, so the money is set aside rather than spent.

Inherited property

You inherit at the probate value, not what the deceased originally paid. Any gain built up during their lifetime is wiped out for capital gains purposes — though the value at death is what counts for inheritance tax.

Your gain runs from the probate value to what you eventually sell for. If you sell soon after and the market hasn't moved, there may be little or no gain at all.

Getting a proper valuation at the date of death matters for both taxes, and it's worth doing properly rather than estimating.

Reducing the bill

Transfer a share to a spouse before selling. Two annual exemptions, and potentially part of the gain taxed at a lower rate. Must be done before the sale is committed.

Time the disposal. A completion falling either side of 5 April changes which tax year the gain lands in, which matters if your income differs between the two years.

Make an election if you genuinely have two residences. There's a limited window and it can be worth a great deal.

Bring forward reported losses from other disposals.

This article is for general education only and isn't personal advice. Property gains involve significant sums, strict deadlines and rules that have changed in recent years — worth getting checked before you complete rather than after.