Do I pay capital gains tax on property?
If you sell a property in the UK, you might need to pay capital gains tax (CGT) on the profits you make.
You generally won’t need to pay the tax when selling your main home.
However, you will usually face a CGT bill when selling a buy-to-let property or second home. You may also need to pay CGT if your home is partly used as a business premises, or if you lease out part of your property.
Video: capital gains tax on property
The video shows how capital gains tax works when you sell a property that’s not your main home.
CGT rates on property
In the UK, you pay higher rates of CGT on property than other assets.
Basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.
With other assets, such as shares, the basic-rate of CGT is 10%, and the higher-rate is 20%.
Bear in mind that any capital gains will be added to your other income sources when working out which income tax bracket you’ll fall into for the year, and therefore might push you into a higher bracket.
All taxpayers have an annual CGT allowance, meaning they can earn a certain amount tax-free.
In 2023-24 you can make tax-free capital gains of up to £6,000 – down from £12,300 in 2022-23. The allowance is due to be cut further in 2024-25, so you can earn just £3,000 tax-free.
Couples who jointly own assets can combine this allowance, potentially allowing a gain of £12,000 without paying any tax.
You’re not allowed to carry over any unused CGT allowance into the next tax year – so if you don’t use it, you’ll lose it.
You can find out more in our guide to capital gains tax rates and allowances.
How much CGT will I pay?
As the name suggests, CGT is only charged on the gains you make (the profit), rather than the full amount you sell the property for.
To work out your gain, you can deduct the amount you originally paid for the property from the sales price.
You can also deduct any legitimate costs involved with buying and selling the property. This includes things like broker fees, stamp duty, and some improvements to the property that were made while you owned it.
You can also offset losses you’ve made when selling other assets. For instance, if you own several properties and make, say, a £50,000 loss when selling one of them, you can use that against the gains you make from another property and therefore reduce your overall CGT bill.
You should claim any losses on your self-assessment tax return, or by calling HMRC. You can claim losses up to four years after they were incurred.
For any taxable gains above the tax-free allowance of £6,000 in 2023-24 (£12,300 in 2022-23), you’ll pay the CGT property rates.
- Do your 2022-23 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.
When is capital gains tax on property due?
For UK properties sold on or after 27 October 2021, you must pay the tax owed within 60 days of the completion of the sale or disposal.
You’ll do this by submitting a ‘residential property return’ and making a payment on account.
For property sales made between 6 April 2020 and 26 October 2021, the window to pay your CGT bill was 30 days.
What can I deduct from my taxable gain?
You’re allowed to deduct certain costs from your gain, if they’re involved with buying and selling the property. These include:
- solicitor and estate agent fees
- stamp duty when buying the property.
Costs involved with improving the property, such as paying for an extension, can also be taken into account when working out your taxable gain.
However, you’re not allowed to deduct costs involved with the upkeep of a property. You’re not allowed to deduct mortgage interest either (though that can reduce the tax you pay on rental income).
Example of selling a second home
Someone is selling a second home in England in 2023-24 for £220,000 after buying it 10 years ago for £120,000.
Their capital gain is the increase in the property value, which is £100,000.
However, they spent £5,000 on solicitor fees and estate agent fees when selling the property, which reduces their gain to £95,000.
They have no other gains or losses, so they can simply use their £6,000 CGT allowance – reducing the taxable part of their gain to £89,000.
The rate of CGT they’ll pay depends on their other income. In this case, let’s say it’s £25,000.
This means they’d pay 18% basic-rate CGT on £25,270 of their gain (taking them up to the threshold of £50,270) – coming in at £4,548.60.
They’d have to pay the higher rate of 28% on the remaining £63,730, which is £17,844.40.
Altogether, the CGT bill would be £22,393.
Capital gains tax on your main home
In most cases, you won’t need to pay CGT when selling the property you live in, because you will be entitled to ‘private residence relief’.
You won’t need to pay CGT for the time a property was your main residence, plus the past nine months of ownership (even if you weren’t living in the property during those nine months).
People with a disability, or those who move into a care home, can claim for up to the past 36 months of ownership.
That said, you may have a capital gains tax bill to pay if you:
- develop your home, for example, by converting part of it into flats
- sell part of your garden, and your total plot – including the area you’re selling – is more than half a hectare (1.2 acres)
- use part of your home exclusively for business
- let out all or part of your home – this doesn’t include having a single lodger if you are living in the property, too
- moved out of your property nine months or more ago – to move into a partner’s home, for example
- bought a home for the purpose of renovating it and selling it on.
Which property is my main home?
If you use more than one home, you can nominate which will be tax-free for CGT purposes. It doesn’t have to be the one where you live most of the time.
Generally, it makes sense to nominate the property that’s you expect to make the largest gain when you come to sell it. You have two years from when you get a new home to make the nomination.
Married couples and civil partners can have only one main home between them, but unmarried couples can each nominate a different home.
Remember, you don’t get tax relief if you bought your home just to sell it on and make a gain.
How does letting relief work with CGT?
If you have let out either all or part of a property, a proportion of any gain when you sell it could be taxable. But if you used to live in the property (or still did at the time of selling), you might be able to claim letting relief, which will reduce your capital gains tax bill.
Letting relief doesn’t apply to buy-to-let investors who let out their properties and never live in them, and it’s now only available for people who have been in shared occupancy with their tenant/tenants. You can also only claim letting relief on the proportion of the property being let, for the period of time it was let out for.
The amount of letting relief you can claim will be the lowest of either:
- the gain you receive from the letting proportion of the home, or
- the amount of private residence relief you can claim, or
- £40,000.
Note that you can’t claim private residence relief and letting relief for the same period. So, if you are letting the property out when you sell it, the past nine months of ownership will 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.
How letting relief works in 2023-24
Letting relief can feel confusing. This example illustrates how to work out capital gains tax when you sell a home you have been letting out.
John has owned a property for 20 years and has decided to sell up. He has no spouse or civil partner.
He bought the property for £200,000, but sold it for £300,000, giving him a £100,000 profit, or gain. We’ve assumed this gain has no allowable costs to be deducted.
During the 20 years (or 240 months) John:
- Lived in the property for 12 years (144 months)
- He then used it as a second home for four years (48 months)
- He then let it out to a tenant for four years, while living at the property (48 months) up to the point of selling the property. The tenant occupied an area equivalent to 25% of the home.
Here’s how John works out his CGT bill for a sale in 2023-24.
The example amount that John has to pay as a basic-rate taxpayer is made on the assumption that John’s gain does not push his overall income into the higher-rate tax band.
CGT on gifted and inherited homes
Your parents or relatives may want to leave you their home in their will. When they pass away, you’ll inherit the property at its market value at the time of death.
There is no CGT payable on death, but the value of the home will be included in the person’s estate. An estate is defined as being the total of someone’s assets and property, minus any debts and funeral expenses.
Depending on the value of the person’s estate, inheritance tax may be payable on the property.
If you then sell the property without having made it your own home, there could be CGT to pay.
The tax you pay will be based on the property’s value when you sell it, compared with its value on the date of death. If the value has increased, you’ll have made a taxable gain. As with any other property gains, you’re able to deduct any associated selling costs.
If you’re given the home while the owner is still alive and living in it, this is called a ‘gift with reservation’.
Essentially, this means the value of the property will still be included in inheritance tax calculations when the gift giver passes away.
However, it may change things in terms of CGT. If you sell the property, the CGT you owe will be based on the increase in value between the date you were given the property – not the date of their death – and the date you sell it.
This is the case even though there may also be inheritance tax to pay on the home at the time of death.
Example of CGT on inherited homes
These tables explain what would happen if John inherited his father’s home.
The first table explains what would happen if it was gifted on death.
The second table explains what would happen if John was given the home 10 years before his father’s death, and his father continued to live there until he died.
With a taxable gain of £56,000, the rate of CGT depends on the rest of John’s income. He’d have to pay 18% if it made up some of his basic-rate threshold up to £50,270. Anything above that would be charged at the higher rate of 28%.
If John already received other income of more than £50,270, the most CGT he could expect to pay is £15,680, which is 28% of the full £56,000.
Which other taxes may be due on UK property?
CGT is just one of the taxes that is levied on properties in the UK, charged when you come to sell it.
When you buy a home, you will likely need to pay stamp duty on the purchase price. The amount depends on whether the property is your main home or a second home or buy to let investment.
Residents also need to pay council tax, with the amount depending on the property size, location, and a few other factors.
If you’re letting out a property, you’ll probably need to pay income tax on the rent you receive.
And, if you leave a property to someone after you pass away, inheritance tax may be charged on some of its value.
Commentary
Property agents are usually hungry for work, so it’s a surprise when they put you on the back-burner. This has been increasingly common in 2022, as the market is hot and agents are spoiled for choice of clients – and it’s led to some people wondering: why aren’t agents interested in helping with their listing? Here are some of the unspoken truths about how realtors may play favourites:
1. Fewer realtors want to help with rental listings
This is an industry problem that’s been hard to rectify: the commissions for handling rental are so low, and the effort so high, that many agents give it a wide berth. The typical rate right now is one month’s rent for a two-year lease, or half that for a one-year lease. Also, the typical market practice is that below $3,500, the tenant is the one that has to pay the commission.
At present (2022), the typical 4-room flat rents for $2,500 to $2,800, while a similar sized (non-central) condo rents for about $4,200 to $4,500.
For this amount, the agent must:
- Pay to put up the listing on a property portal
- Pay to refresh the listing
- Conduct viewings, which incur transport costs
- Help to vet the tenants, and ensure all their paperwork is in order (some foreign tenants may have communication difficulties, making this an especially time-consuming process)
- Handle other essential paperwork, such as the Tenancy Agreement
And given the hot rental market now, a popular listing can garner hundreds of messages, that the agent will have to go through.
Several realtors complained that, in practice, this is not even where the job will end.
Most landlords in Singapore also expect realtors to deal with subsequent issues, ranging from disputes between tenants, to leases being broken under unusual circumstances (e.g., a student tenant fails their exam, and wants to break the lease to go home a year earlier).
The landlord may not understand realise that the agent’s job officially ends once the TA is signed. If the agent hopes to get future business, such as during lease renewal, they have to go above and beyond.
And if you think about it, this is the same amount of work that will have to be done with a listing for sale.
Given the more lucrative selling/buying market, don’t be surprised if realtors show less enthusiasm about taking on rental units.
2. Your listing is an urgent sale
The most typical example of this is being close to your Additional Buyers Stamp Duty (ABSD) deadline: if you bought a second property before selling your previous home, you have only six months to sell your old property if you want to claim ABSD remission.
If you’re down to the last one or two months, realtors may not want get involved – not without a higher commission. The reason is simply that, for such urgent sales, the realtor is required to drop other business to prioritise you. This can result in opportunity costs, such as a slower response to leads for other listings.
The other concern is how you’ll react, if the realtor’s efforts fail. One property agent told us that, when she failed to close an urgent sale back in 2018, the seller even threatened to take legal action against her for the loss of their ABSD money. This was despite the fact she had only two months to find a buyer, and that the buyer had forfeited the Option and backed out of the deal at the last minute. She has since sworn off similar situations.
One agent said that raising the commission for urgent sales – a common tactic among desperate buyers – doesn’t always entice realtors. Urgent sales are so stressful and demanding, some realtors will avoid these for the sake of their own mental health.
In any case, an urgent sale is tough to pull off, and many agents simply don’t have leads on buyers ready to transact so soon – so don’t be surprised if you never hear back from them.
3. You don’t have an exclusive agreement with an agent or agency
Taking a non-exclusive agreement represents an extra risk for realtors. The main worry is that the agent may spend time and money to market your listing, but you end up transacting through another agent instead.
Regarding property portals, for instance, there have been cases where agents spend more on refreshing a listing, but by sheer luck the buyer contacts an agent who barely spent anything. This shouldn’t happen in theory, as the agents who spend more should go to the top of the page – but it has happened.
Monthly Marketing Expenses | |
PropertyGuru Subscription + extra credits every quarter | $580.9 |
99.co Subscription + 2,500 credits | $558.3 |
Traditional Flyers | $400 |
Newspaper Ads (3 days/month) | $153 |
Social Media Marketing | $1,500 |
Home Tour Video (1/month) | $500 |
Some agents also don’t like how this appears on property portals: the listing for the same property could be linked to multiple agents at the same time, and this gives the impression that something shady is going on. One agent said she once had to explain she wasn’t “stealing” a listing, when the prospective buyer noticed the same unit (albeit with different pictures) was linked to two other realtors.
When agents do take a non-exclusive deal, it becomes secondary to their exclusive clients, so you may notice fewer viewings or offers.
4. There are financing issues regarding your property
In some cases, property agents will back out after buyers mention financing issues. These can occur based on the following:
- Legal proceedings that make it difficult for buyers to obtain loans for your property (e.g., the MCST is currently involved in a lawsuit, or you are currently facing issues related to bankruptcy or divorce settlements). Agents are usually fine to take on your listing after the case is resolved.
- Cash-only purchases are required, such as for properties with 30 or fewer years on the lease, or are within the Geylang red light district*
- Banks offer a lower loan quantum due to the nature or age of the property (e.g., buyers may require a down payment of 45 per cent for some very old or decrepit properties)
There are some realtors able to help even in these cases – some realtors are especially experienced in marketing older properties, and may have ready contacts who look out for these units; but these are not most of the property agents you’ll encounter.
*For properties that must be fully transacted in cash, buyers and sellers sometimes make the transaction via private contracts. For these cases, you need to contact a conveyancing firm, rather than a property agent. There may be no realtor involved in a private contract.
5. Your asking price is too far off the mark
One of the most common reasons we see realtors back off is price: when you set your rental or sale price way too high, many realtors may give up rather than even attempt it.
A common question here is “Why don’t they just try anyway? They will get higher commissions.” The reason is that realtors need to pay for the marketing of your property first, and commit time and money to it – failure to close the deal means they won’t be compensated for any of those efforts.
And the more unrealistic the price, the more expensive the marketing attempts need to be; realtors will need to stretch the perceived value with pricey home staging, video tours, etc.
So if a realtor has no confidence in your price, they would rather avoid the expense and turn down your listing altogether.
Do note that even if you are asking for an impossibly high price and the agent takes it without question, that might be a sign your listing is used for price anchoring.
It may seem unethical, that the agent is using your listing for a bait-and-switch. They may show your property first, but imply it’s expensive for what it offers; next they’ll show the property they actually aim to push on the buyer.
This will make the second property more attractive than yours, due to price anchoring.
On the buyers’ side of the equation, some realtors will actively avoid those with unrealistic budgets (e.g., earning less than $3,000 a month, but trying to buy a four-bedder condo), or some buyer’s that are extremely out of touch with the market, and are hoping that sellers will sell at 2017 prices. Realtors still need to spend for transport, and conduct viewings, even if the property being viewed is way beyond the buyer’s reach.
Have you had property agents who seemed reluctant to work with you? Let us know in the comments. In the meantime, you can follow us on Stacked to check on news and trends in the Singapore property market.