Capital gains tax on property confuses tax payers more than almost any other tax. Here is how the calculation actually works, using a £250,000 gain as an example.
You bought a property in 2015 for £200,000 and sell it in 2025 for £450,000. The gain is £250,000. But that is the gross gain, before any deductions.
First, subtract your allowable costs: solicitor fees on purchase and sale, estate agent fees, and any capital improvements you made (not repairs but improvements). Say those total £15,000. Your net gain is now £235,000.
Deduct the annual CGT exemption of £3,000. Taxable gain: £232,000.
The CGT rate on residential property in 2026/27 is 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers. Most landlords selling will be in the 24% bracket. Tax on £232,000 at 24%: £55,680.
Now for the reliefs most people miss. Private residence relief: if you ever lived in the property as your main home, a proportion of the gain is exempt and the final 9 months of ownership always qualifies, even if you were not living there. This can reduce the gain significantly.
Lettings relief used to be generous, but it is now only available if you lived in the property at the same time as your tenants, which rules it out for most landlords.
Rollover relief and gift holdover relief can apply in specific circumstances and are worth knowing about.
One more thing: you have 60 days from completion to report and pay any CGT on a UK residential property sale. Miss that deadline and the penalties start immediately.