Capital Gains Tax (CGT) on UK Property Sales

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When does Capital Gains Tax apply to property? →

How Capital Gains Tax is calculated →

Allowable costs you can deduct for CGT →

Costs that are NOT allowable for CGT →

Capital Gains Tax rates (current) →

Business Asset Disposal Relief (BADR) – commercial property →

CGT reporting deadlines – residential vs commercial property →

Common CGT mistakes we see →

How Karia Accountants can help →

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Residential and Commercial Property – A Practical Guide

When you sell or dispose of a UK property that is not fully covered by Private Residence Relief, you may need to pay Capital Gains Tax (CGT). The rules differ depending on whether the property is residential or non-residential (commercial), and there are now strict reporting deadlines, particularly for residential property.

This guide explains:

How CGT on property is calculated
What costs are allowable when calculating your gain
What costs cannot be claimed
Current CGT rates for residential and commercial property
How Business Asset Disposal Relief (BADR) applies
The deadlines for reporting and paying CGT

Karia Accountants regularly assists landlords, investors, and business owners with CGT calculations, BADR claims, and HMRC filings to ensure everything is reported correctly and on time.

When does Capital Gains Tax apply to property?

CGT can arise when you:

Sell a buy-to-let property
Sell a second home or a former main residence (in full or part)
Gift or transfer property (HMRC treats this as a disposal at market value)
Sell commercial or mixed-use property

CGT is charged on the gain, not the sale proceeds.

HMRC Capital Gains Manual reference: CG14200 onwards

How Capital Gains Tax is calculated

The basic CGT calculation is:

Sale proceeds less allowable selling costs less purchase price less allowable acquisition and improvement costs

= Chargeable gain

From this gain you then deduct:

Any available reliefs (e.g. Private Residence Relief, BADR)
The annual CGT exemption (if available for the year)

The remaining gain is taxed at the applicable CGT rate.

Allowable costs you can deduct for CGT

A. Purchase and acquisition costs

You can deduct costs that were wholly and exclusively incurred in acquiring the property, including:

Stamp Duty Land Tax (SDLT)
Solicitor and conveyancing fees
Surveyor and valuation fees related to the purchase
Agent or finder’s fees on acquisition

HMRC reference: CG15160, CG15250

B. Capital improvement costs

Capital improvement costs are deductible where they:

Enhance the value of the property
Are still reflected in the property at the time of sale
Are not routine repairs or maintenance

Examples of allowable capital improvements:

Extensions
Loft conversions
Structural alterations
Installing central heating where none previously existed
Converting commercial premises or reconfiguring layouts

HMRC reference: CG15180, CG15200

Important technical point: Routine repairs (even if expensive) are not capital, even if they improve appearance. HMRC looks at whether the work restores or enhances the asset.

C. Selling and disposal costs

You can deduct costs directly related to the sale, such as:

Estate agent fees
Solicitor and conveyancing fees on sale
Advertising costs for selling the property
Valuation fees required for CGT calculations

HMRC reference: CG15250

Costs that are NOT allowable for CGT

The following are not deductible when calculating capital gains:

Mortgage or loan interest
Letting agent fees during ownership
Repairs and maintenance (e.g. decorating, boiler repairs, replacement of broken items)
Council tax, utilities, insurance
Costs already claimed against rental income
Your own time or labour

HMRC does not allow “double relief” — an expense can only be claimed once.

Capital Gains Tax rates (current)

Residential property (individuals)

For residential property that is not fully covered by Private Residence Relief:

18% – where the gain falls within the basic rate income tax band
24% – where the gain falls above the basic rate band

HMRC reference: CG10200

Commercial / non-residential property

For non-residential (commercial) property, including shops, offices, warehouses and mixed-use property:

18% – basic rate band
24% – higher and additional rate band

These rates now align with the main CGT rates for individuals.

Business Asset Disposal Relief (BADR) – commercial property

Business Asset Disposal Relief (BADR) can reduce CGT to a flat rate of 14% on qualifying disposals, subject to a lifetime limit of £1 million.

BADR may apply where:

You sell a trading business, or
You dispose of commercial property used by your own trading company or partnership

Key conditions (simplified):

The asset must be used in a qualifying trade
Ownership and use conditions must usually be met for at least two years
Pure investment or buy-to-let property does not qualify

HMRC reference: CG63950 onwards, CG64000 series

This is a complex area and frequently reviewed by HMRC. Karia Accountants strongly recommends reviewing BADR eligibility before contracts are exchanged.