Capital Gains Tax When Selling a Property in London
Kevin Gold updated on 4th March 2026
Capital gains tax (CGT) is payable when you sell or dispose of a residential property that is not your main home.
Read on if you are wondering when you would pay capital gains tax on your central London property. Homes in Mayfair, Maida Vale and Soho are valuable assets, so you’ll need to consider the effects of a sale on your capital gains tax.
We also look at how to calculate capital gains tax rates and how you can reduce your bill.
Capital Gains Tax On Your Main Home
If you sell a house in the UK, you may need to pay capital gains tax (CGT) on your profits. Usually, you don’t have to pay any CGT when you sell your primary (or only) home – as long as all these conditions are met:
You have a single home, which you’ve lived in as your main home for the entire time you’ve owned it.
You haven’t let part of it out (excluding lodgers).
You have not used part of your home exclusively for business purposes. Temporary or occasional office spaces do not count as exclusive business use.
The grounds and buildings you’re selling are less than 5,000 sqm in total – i.e. a little more than an acre.
You did not merely buy the property to make a financial gain.
If all these conditions apply to your home sale, you will not be charged capital gains tax. This is because Private Residence Relief covers it and exempts you from any CGT due on your home sale.
You’ll need to be wary of these rules. For example, some central London properties have extensive ground space, which may take you over the 5000 sqm limit and make you liable to capital gains tax.
Changes to Capital Gains Tax in 2025
The October 2024 budget outlined changes to CGT, with standard rate CGT increasing from 10% to 18% and higher rate CGT increasing from 20% to 24%. However, residential properties were not included in the increases to CGT.
The CGT for residential properties for basic rate taxpayers remained at 18% and for higher rate taxpayers, the CGT rate decreased from 28% to 24%. These rates applied to properties sold after 30 October 2024.
CGT Rates On Property
If you are a basic rate taxpayer, then you will initially pay 18% on gains made when selling property. If you pay the higher income tax rate, you will pay 24%.
CGT Residential Property Rates
Tax band
Taxable income
CGT % rate on residential property gains
Basic rate
£12,571 to £50,270
18%
Higher or additional rate
£50,271 and over
24%
Standard rate
However, even basic-rate taxpayers can be charged a higher rate. This happens when the financial gain from their property sale exceeds the basic tax threshold of £37,700 profit (after allowable deductions). Therefore, any profit made above £37,700 will be taxed at 24%, as if the person was a higher-rate taxpayer. This is almost guaranteed to happen if you sell a high-value property with significant financial gain.
Remember, all capital gains will be included when working out the tax you pay for the year. This may also push you into a higher tax bracket, even if these gains aren’t related to your property sale.
Everyone is entitled to tax-free capital gains worth £3,000 from the 2024/25 tax year (this was previously £6,000 in 2023/24 and £12,300 previous to that). Only gains above this amount are taxed. This tax relief is on an individual basis, so couples who jointly own property have a combined allowance of £6,000.
How Much Capital Gains Tax Will I Pay?
Capital Gains Tax is only payable on the profit you make from selling the property rather than the total sale price. The amount of capital gains tax you pay will depend on whether you are a basic-rate or higher-rate taxpayer, jointly own the property, and have any other losses to offset. Read on for how to calculate your capital gain.
How Do I Calculate My Capital Gain?
Deduct the amount you originally bought the property from the sale price to determine your gain. You can also deduct the costs associated with buying and selling the property. This includes stamp duty, estate agent fees, survey costs and conveyancing fees. You can also deduct expenses incurred improving your home, such as paying for an extension. However, you cannot deduct maintenance costs. You are also not permitted to deduct interest on a loan you took to purchase the property.
Offset any losses you made selling other assets. For instance, if you are selling several properties and incur a £40,000 loss selling one of them, you can offset that against the gains you make selling other property.
Finally, deduct your annual CGT allowance to give your taxable amount. If you jointly own the property with your spouse, you will effectively double your allowance.
Example of how to deduct rates from capital gain s tax
The average property price in Marylebone over the last 12 months was just under £2,000,000, so if you bought the property for £1,500,000 in 2010, your CGT calculation would be as follows:
Gains: £2,000,000 – £1,500,000 = £500,000
Deductibles:
Stamp duty (2010 rates and before second home surcharge was introduced): 5% of £1,500,000 = £75,000
Tax rate of capital gains tax on higher tax band (from April 2025) = 24%
Capital gains tax payable: 24% of £385,000 = £92,400
When Do I Pay Capital Gains Tax?
Capital gains tax must be paid within 60 days of the completion of the sale or disposal of the property. You may have to pay a fine if you do not report and pay within the allocated time.
The declaration and payment can be made on HMRC’s online UK Property Reporting Service. If you are registered for self-assessment, you must also report this on your tax return.
Do I Pay Capital Gains Tax On Buy-To-Let Property & Second Homes?
When you sell a house that is not your main home, you must pay tax on any profit above your CGT allowance.
As with second homes, you will be subject to CGT on any profit made above your CGT allowance when selling buy-to-let properties. If you lived in your buy-to-let property before its sale, you can claim Private Residence Relief.
How Does Letting Relief Work With CGT?
In addition to Private Residence Relief, you may be eligible to claim Letting Relief. This can be used if you are selling a property that is or was your main residence, and during your ownership, part of the property was let out to a tenant whilst you were also living there.
If you have multiple properties, nominating one of them as your main home is possible by writing to HM Revenue & Customs. For your home to qualify, you must have lived in it as your only or main home at some point since you purchased it. You have two years to register one of your properties as your main home whenever there is a change in your property portfolio.
The amount of lettings relief you can claim is the lowest of:
the amount of any chargeable gain that you made while letting out part of your home.
Capital Gains Tax On Inherited Or Gifted Property
Property As A Gift
Gifting a property is counted as a disposal for capital gains tax purposes. You must pay CGT on the difference between the gift’s market value and the original cost.
You do not pay capital gains tax if you gift the property to your spouse, civil partner, or a charity.
Inherited Property
You don’t pay CGT on an inherited property at the point when you inherit it. However, when you come to sell it, you may have to pay CGT if the property has increased in value since you inherited it. To avoid or reduce your capital gains tax bill on inherited property, you should sell the property quickly before the market value increases.
However, you will have to reckon with inheritance tax in general. If you inherit a property as part of someone’s estate, and the total value exceeds £325,000, then you will have to pay inheritance tax. You will be taxed at 40% for any money you make above this threshold. However, if you have received the home as a child or grandchild of the owner, then the inheritance tax-free limit can go up to £500,000. Equally, if your spouse or civil partner has left you the part of their estate which exceeds the £325,000 tax-free allowance, then you will not have to pay inheritance tax.
There are various ways you can minimise your capital gains tax liability.
Deduct costs – Make sure that you are aware of all the allowable costs you can deduct. When working out your CGT bill, you can deduct the costs you incurred buying and selling the property from your gain. This includes legal and estate agent fees as well as stamp duty. You can also deduct costs for improving the property, such as an extension. However, you cannot deduct maintenance costs or your mortgage interest.
Use spouse allowance (if applicable) – Don’t forget to make use of your spouse allowance if applicable. Sharing property ownership with your spouse will double your GCT allowance, thus reducing your tax bill. The 2024/25 allowance is £3,000, and with spouse allowance, this doubles to £6,000.
Note the different CGT bands – If your spouse is a lower-rate taxpayer than you, you can save on CGT by transferring all or part of the property into their name.
Maximise your CGT allowance – Consider delaying the sale if you have already used all or part of your CGT allowance for the tax year.
Claim private residence relief – If the property has historically been your primary residence, you can claim Private Residence Relief for that period plus nine months. For example, if you lived in the property for ten years (120 months) and then rented it out for five years (60 months) before selling, you could claim private residence relief on 72% of the gain (129 months out of 180 months).
Invest in EIS (Enterprise Investment Scheme) – When selling a second home, you can invest the gain in an EIS-qualifying investment. The CGT will be deferred for the term that the money remains invested. However, EIS schemes can be high risk, so they may not be the most suitable option for all property investors.
Use Principle Private Residence relief – If the property you are selling was once your primary residence, you can claim relief for a proportion of CGT based on the amount of time you lived in the property compared to how long you rented it out.
Are there any exemptions from CGT?
If the property you are selling was your main residence, then you will not usually be required to pay capital gains tax and if you have two homes, you can nominate one to be your main residence. Unmarried couples who have two properties between them can each nominate a different home as their main residence. This rule would not apply if you bought the property to sell it for a gain.
Another way you may be exempt from paying CGT is if your deductible costs, allowances and any relief amount to more than your gains. There is no capital gains tax on properties that you give to a spouse, civil partner or charity.
Kubie Gold Associates are an independent local firm of estate agents specialising in the Rental, Sale and Property Management of Residential Property in the North-West and Central London market
