This guide explains everything you need to know about the 60-day rule, who it affects, how to calculate what you owe, and how to report and pay on time. Whether you're selling a buy to let property, a second home, or an inherited house, understanding these rules could save you thousands of pounds in unnecessary penalties.
What Is Capital Gains Tax?
Capital Gains Tax is a tax that you pay on the profit you make when you sell or dispose of an asset that has increased in value. It is important to understand that you are taxed on the gain, not on the total amount of money you receive from the sale.
For example,
If you purchased a property for £200,000 and later sold it for £300,000, your gain would be £100,000. This gain is what may be subject to Capital Gains Tax, depending on various factors such as your annual tax-free allowance and whether any reliefs apply.
Capital Gains Tax applies to a wide range of assets, including property, shares, business assets, and valuable possessions such as artwork or jewellery. However, this guide focuses specifically on UK residential property sales.
It is worth noting that not all property sales are subject to Capital Gains Tax. Your main home, known as your principal private residence, is usually exempt from this tax. However, if you own additional properties such as buy to let investments, second homes, or inherited properties, you will likely need to pay Capital Gains Tax on any profit you make when you sell them.
Who Needs to Pay Capital Gains Tax on Property?
Understanding whether you need to pay Capital Gains Tax on a property sale depends on several factors. Here are the main scenarios where Capital Gains Tax may apply:
Selling a Second Home or Holiday Property
If you sell a property that is not your main home, such as a second home or holiday property, you will generally need to pay Capital Gains Tax on any profit you make. The fact that you occasionally use the property for personal use does not exempt it from this tax.
Selling a Buy to Let Property
One of the main benefits of using an SPV is risk isolation. The property is owned by the SPV, not you personally, meaning financial risks such as tenant defaults or repair costs are confined within the SPV, protecting your personal assets. If a property owned by the SPV goes into negative equity, your personal savings or other assets are safe. The SPV is legally responsible for its debts, not you are personally.
Selling an Inherited Property
An SPV allows for a clear ownership structure. You can issue shares, making it easier to bring in investors, family members, or partners. This is especially useful for joint ventures, as ownership can be divided according to the capital invested, with profits and losses distributed based on shareholding. This structure simplifies management and makes ownership clearer than if you held the property personally.
Selling Part of Your Main Home
Using an SPV shows a professional approach to property investment. Lenders often view SPVs as more structured and credible than individual ownership. SPVs also make your investment activity more transparent. Lenders and investors can easily assess the SPV’s financial health through its accounts and tax filings, improving your chances of securing financing and attracting future investment.
Non-Residents Selling UK Property
If you are not a UK resident but sell a UK property, you will still need to report and pay Capital Gains Tax to HMRC. The same 60-day rule applies to non-residents.
When Does Capital Gains Tax Not Apply?
There are several situations where you do not need to pay Capital Gains Tax on a property sale:
Your Main Home
Gains Below the Annual Allowance
Gifts to Your Spouse or Civil Partner
Donations to Charity
What Is the 60-Day Reporting Rule?
The 60-day rule is one of the most significant changes to Capital Gains Tax reporting in recent years. Introduced in April 2020, this rule requires anyone who sells a UK residential property and has Capital Gains Tax to pay to report the sale and pay the tax within 60 days of the completion date.
This represents a major shift from the previous system, where Capital Gains Tax on property sales was reported and paid as part of your annual self-assessment tax return, which could be up to 22 months after the sale.
Why Was the 60-Day Rule Introduced?
The government introduced the 60-day rule to ensure that Capital Gains Tax is paid more quickly after a property sale. This change helps HMRC collect tax revenue sooner and reduces the risk of people forgetting about their tax obligations or spending the money they owe in tax.
What Happens If You Miss the 60-Day Deadline?
Missing the 60-day deadline can have serious consequences. HMRC may charge penalties and interest on any unpaid tax. The penalties start from the day after the deadline and increase the longer the payment is overdue. Even if you have a valid reason for missing the deadline, you should contact HMRC as soon as possible to explain your situation and arrange payment.
How Do You Calculate Your Capital Gain on Property?
Calculating your capital gain is a crucial step in determining how much Capital Gains Tax you owe. The process involves several steps:
Step 1 - Determine Your Purchase Price
The purchase price includes the amount you paid for the property plus any additional costs associated with buying it. These costs can include solicitor fees, stamp duty, and surveyor fees. These are known as acquisition costs.
Step 2 - Determine Your Sale Price
The sale price is the amount you received when you sold the property. You can deduct certain costs from this amount, including estate agent fees, solicitor fees, and any costs directly related to selling the property. These are known as disposal costs.
Step 3 - Add Allowable Improvements
If you made improvements to the property during your ownership, you could deduct these costs from your gain. However, it is important to note that only capital improvements count. These are improvements that add lasting value to the property, such as building an extension, installing a new kitchen, or adding a conservatory.
Regular maintenance and repairs, such as redecorating, fixing a broken boiler, or replacing worn carpets, do not count as allowable improvements.
Step 4 - Calculate Your Gain
Once you have gathered all the relevant figures, you can calculate your gain using this formula:
Sale price minus disposal costs minus purchase price minus acquisition costs minus allowable improvements equals your capital gain.
Step 5 - Apply Any Reliefs
There are several reliefs that could reduce your capital gain, including Private Residence Relief if you lived in the property as your main home for part of the ownership period, and Letting Relief in certain circumstances.
Step 6 - Deduct Your Annual Allowance
Finally, you can deduct your annual Capital Gains Tax allowance from your gain. For the 2024 to 2025 tax year, this is £3,000. Any remaining gain is subject to Capital Gains Tax.
For example,
Emma bought a second home in 2015 for £210,000 and sold it in 2025 for £400,000. During her ownership, she made improvements to the property (such as adding an extension) costing £28,000. She also paid £3,100 in acquisition costs and £5,800 in selling costs.
Step-by-Step Calculations:
- Purchase Price and Acquisition Costs:
- Purchase Price: £210,000
- Acquisition Costs (e.g., solicitor fees, stamp duty): £3,100
- Total Acquisition Costs = £210,000 + £3,100 = £213,100
- Sale Price and Disposal Costs:
- Sale Price: £400,000
- Disposal Costs (e.g., estate agent fees, solicitor fees): £5,800
- Net Sale Proceeds = £400,000 − £5,800 = £394,200
- Allowable Improvements:
- Capital Improvements (e.g., extension): £28,000
- Calculate the Capital Gain:
- Sale Price = £394,200
- Less Purchase Price & Acquisition Costs = £213,100
- Less Improvements = £28,000
Capital Gain = £394,200 − £213,100 − £28,000 = £153,100
- Apply the Annual CGT Allowance:
- Annual Exempt Amount (2024 to 2025 tax year) = £3,000
- Taxable Gain = £153,100 − £3,000 = £150,100
Final Taxable Gain:
Emma's taxable capital gain is £150,100. This is the amount that will be used to calculate her CGT liability, based on her income and the applicable CGT rate for the 2025 to 2026 tax year. If Emma is required to pay CGT, she will need to report and pay it within 60 days of the property sale completion date, as per the rules introduced in April 2020.
What Are the Capital Gains Tax Rates on Property?
The rate of Capital Gains Tax you pay depends on your total taxable income for the year and whether you are a basic rate or higher rate taxpayer.
Basic Rate Taxpayers
Basic rate taxpayers will pay 18 per cent on residential property gains that fall within their basic rate tax band. If adding the gain to your income pushes you into the higher rate band, you will pay 18 per cent on the portion of the gain within the basic rate band and 24 per cent on the portion of the gain that falls into the higher rate band.
Higher and Additional Rate Taxpayers
Higher rate taxpayers will pay 24 percent on any residential property gains, and this rate also applies to any portion of the gain for basic rate taxpayers that exceeds the basic rate threshold.
It’s crucial to calculate your total income for the year before determining the applicable tax rate because your total taxable income plus gain can affect the amount of CGT you owe.
For example, if the gain from the sale of a property bumps your income into the higher tax bracket, the portion of the gain that falls above the basic rate threshold will be taxed at the higher 24 per cent rate.
Example:
John, a basic rate taxpayer, earns £30,000 a year and sells a residential property, making a £50,000 capital gain in 2025. Here's how his CGT is calculated:
- Total income + gain = £30,000 (income) + £50,000 (gain) = £80,000.
- The basic rate band for the 2025/26 tax year is £50,270, and John’s income already uses up £30,000 of it.
- £20,270 of his capital gain can be taxed at 18 percent:
£20,270 × 18% = £3,648.60. - The remaining £29,730 will be taxed at 24 percent:
£29,730 × 24% = £7,155.20.
Total CGT Payable = £3,648.60 (18%) + £7,155.20 (24%) = £10,803.80.
How Do You Report and Pay Capital Gains Tax Within 60 Days?
Reporting and paying Capital Gains Tax within the 60-day deadline requires you to use HMRC's online Capital Gains Tax on UK property account. Here is a step-by-step guide to the process:
Create a Capital Gains Tax on UK Property Account
You will need to create an account on the HMRC website specifically for reporting Capital Gains Tax on property sales. This is separate from your usual self-assessment account if you have one.
To create an account, you will need:
- Your National Insurance number
- An email address
- Details of the property sale
- Details of your capital gain calculation
Complete Your Property Details
You will need to provide information about the property you sold, including the address, the completion date, and whether it was your main home at any point during your ownership.
Calculate and Report Your Gain
Using the calculation method described earlier, work out your capital gain and enter the figures into the online form. The system will guide you through each step and calculate your tax liability.
Pay Your Tax
Once you have submitted your report, you will be given payment details. You can pay by debit card, direct debit, or bank transfer. Make sure you pay before the 60-day deadline to avoid penalties.
Keep Records
After submitting your report and payment, you will receive a confirmation from HMRC. Keep this confirmation along with all supporting documents, as you may need them if HMRC queries your return or if you need to amend it later.
Include the Sale in Your Self-Assessment
If you complete a self-assessment tax return, you will still need to include details of the property sale in your return for the relevant tax year. However, because you have already paid the tax within 60 days, you will not need to pay again. The self-assessment process will reconcile any differences and either refund overpaid tax or request additional payment if needed.
What Records Should You Keep?
Keeping accurate records is essential for calculating your Capital Gains Tax correctly and providing evidence to HMRC if required. You should keep the following documents:
HMRC requires you to keep these records for at least five years after the 31 January following the tax year in which you sold the property. If you are investigated by HMRC, these records will be essential in supporting your Capital Gains Tax calculation.
What Happens If You Make a Loss?
If you sell a property for less than you paid for it, you will make a capital loss rather than a capital gain. While this is obviously not ideal financially, there are some tax advantages to making a loss.
You can use capital losses to reduce capital gains in the same tax year or carry them forward to reduce gains in future years. If you make a loss, you should still report it to HMRC so that it is registered and available to offset against future gains.
Note: To report a capital loss, you need to include it in your self-assessment tax return for the year in which the loss occurred. You cannot report losses through the Capital Gains Tax on UK property account. Losses that arise from property sales need to be included in the self-assessment return, while certain losses from property disposals made before the completion date may be reported in the CGT on UK Property account.
What Are the Common Mistakes to Avoid?
Missing the 60-Day Deadline
This is by far the most common and costly mistake. Mark the completion date of your property sale in your calendar and set reminders well in advance of the 60-day deadline. It is advisable to complete your report and payment as soon as possible after completion rather than waiting until the last minute.
Incorrectly Calculating the Gain
Many people make errors when calculating their capital gain, often by forgetting to include allowable costs or by including costs that are not allowable. Take your time with the calculation and consider seeking professional advice if you are unsure.
Not Claiming Available Reliefs
There are various reliefs available that can significantly reduce your Capital Gains Tax bill. Private Residence Relief is particularly valuable if you lived in the property at any time. Make sure you understand which reliefs apply to your situation and claim them appropriately.
Poor Record Keeping
Failing to keep adequate records can result in you paying more tax than necessary or being unable to support your tax calculation if HMRC queries it. Start keeping records from the day you purchase a property and maintain them throughout your ownership.
Assuming Your Main Home Is Always Exempt
While your main home is usually exempt from Capital Gains Tax, this exemption does not apply in all situations. If you have rented out part of your home, used it for business purposes, or owned it while living elsewhere, you may have a partial liability.
When Should You Seek Professional Advice?
Capital Gains Tax can be complex, and the consequences of getting it wrong can be costly. You should consider seeking professional advice from a qualified accountant or tax adviser if:
- You have a large capital gain and want to ensure you are claiming all available reliefs
- You have owned the property for many years and have complicated records
- You have made numerous improvements to the property and are unsure which are allowable
- You have lived in the property for some periods and rented it out for others
- You are a non-resident selling UK property
- You have made capital losses in previous years that you want to offset
- You are approaching the 60-day deadline and have not yet completed your calculation
- You have received correspondence from HMRC querying your calculation
Professional advice can often save you more in tax than it costs in fees, and it provides peace of mind that your tax affairs are in order.
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How Do Recent Changes Affect You?
Capital Gains Tax rules and allowances change regularly, so it is important to stay informed about current rates and requirements. Some recent changes that may affect property sellers include:
Reduced Annual Allowance
The annual Capital Gains Tax allowance has been significantly reduced in recent years. It was £12,300 for the 2022 to 2023 tax year, then reduced to £6,000 for 2023 to 2024, and further reduced to £3,000 for 2024 to 2025. This means more people are likely to have taxable gains when they sell property.
Increased Reporting Requirements
The introduction of the 60-day rule means property sellers must be much more proactive about reporting and paying Capital Gains Tax. There is no longer the luxury of waiting until the following January to deal with your tax affairs.
Digital Tax Reporting
HMRC is moving towards digital tax reporting for all taxpayers. The Capital Gains Tax on UK property account is part of this transition, and more aspects of tax reporting are likely to become digital only in the future.
Conclusion
Selling a property in the UK comes with important tax obligations, and the introduction of the 60-day reporting rule for Capital Gains Tax (CGT) has made it essential to understand your responsibilities. The 60-day deadline starts from the completion date of your property sale, so it’s crucial to act quickly by gathering records, calculating your gain, and completing the online report. Failing to meet the deadline can result in penalties and interest charges, so don't leave it until the last minute. If you're unsure about calculating your gain, applying reliefs, or completing the report, professional advice is recommended to avoid costly mistakes.
By staying informed and following the rules, you can navigate the CGT reporting process with confidence and avoid unnecessary stress. Make sure to mark the 60-day deadline on your calendar, gather your records, and complete your report early.
FAQs:
It depends on the property type. Your main home is usually exempt due to Private Residence Relief. However, second homes, buy to let properties, holiday homes, and inherited properties are typically subject to Capital Gains Tax on any profit after deducting costs and your £3,000 annual allowance.
You must report and pay any Capital Gains Tax due within 60 days of completion if the sale completed on or after 27 October 2021. Use HMRC's online Capital Gains Tax on UK property account. The countdown starts from completion, not exchange. Missing the deadline results in penalties and interest.
HMRC charges penalties and interest from the day after the deadline. Penalties increase with delays. Contact HMRC immediately if you miss the deadline to minimise additional charges.
Subtract your purchase price and allowable costs (solicitor fees, estate agent fees, stamp duty, capital improvements) from your sale price. Deduct your £3,000 annual allowance. Tax the remainder at 18 per cent for basic rate taxpayers or 24 per cent for higher rate taxpayers.
UK residents do not need to report online if gains are below the allowance. However, report it in self-assessment if you complete one, or if proceeds exceed £50,000. Non-residents must report all UK property sales, even with no tax due.
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