How to Reduce Capital Gains Tax on Property (UK)

Selling a second home, a rental flat or a commercial unit can leave you with a capital gains tax (CGT) bill that runs into five figures. You can't make CGT disappear by wishing, but you can often reduce it legally, sometimes to nothing, with the right reliefs and a bit of planning.

This guide explains the rules that apply for the 2025/26 tax year and walks through the practical, fully legal ways to bring your bill down. It's written for landlords, second-home owners and business owners selling property.

Every rate and threshold here is taken from current HMRC guidance, and the Sources list at the end links to each page so you can check it yourself.

What are the capital gains tax rates on property for 2025/26? {#cgt-rates}

Your CGT rate on property depends on whether you're a basic-rate or higher-rate taxpayer once the gain is added to your income for the year.

For 2025/26, the rates on residential property are 18% for gains that fall within your basic-rate band and 24% above it. The higher residential rate was cut to 24% (from 28%) on 6 April 2024.

Commercial property and other non-residential assets moved to 18% and 24% from 30 October 2024, bringing them into line with residential property. The furnished holiday let regime was abolished from 6 April 2025, so those properties are now treated like any other residential property for CGT.

How does your income affect the rate?

Your CGT rate is set by your total taxable income plus gains in the same year. The higher-rate threshold is £50,271 for 2025/26.

If your income already sits above that threshold, you've used up your basic-rate band, so the whole of a property gain (after your allowance) is taxed at 24%. If your income is lower, part of the gain may be taxed at 18% until the basic-rate band is full, with the rest at 24%.

Income tax bands are frozen until April 2028, so as wages rise more sellers find themselves paying the 24% rate rather than 18%. If you want to model your position, our income tax calculator shows where your basic-rate band runs out.

What is the capital gains tax allowance on property for 2025/26? {#cgt-allowance}

Everyone has an annual exempt amount, the slice of gains you can make each year before any CGT is due. For 2025/26 it's £3,000 per person.

The allowance can't be carried forward. If you don't use it in a tax year, it's gone.

The practical takeaway is that a £3,000 allowance shelters very little of a typical property gain, so the reliefs below matter far more than they used to.

How long must you live in a house to avoid CGT in the UK? {#prr}

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This is the most common CGT question we get, and the answer turns on Private Residence Relief (PRR).

How does Private Residence Relief work?

If a property has been your only or main home for the whole time you owned it, PRR usually means the gain is completely exempt from CGT. If it was your main home for only part of the time, you get proportionate relief for that period.

There's no fixed minimum period of occupation in the legislation, but you must genuinely live there as your home. HMRC looks at the substance: where you actually spend your time, where your family and belongings are, and your registrations (GP, electoral roll, and so on), not just where your post is sent.

What is the final-period exemption?

Even after you move out, the last 9 months of ownership always qualify for PRR, as long as the property was your main home at some point. This was cut from 18 months in April 2020, so timing a sale matters more than it once did.

Can you nominate which home counts as your main residence?

If you have two or more homes, you can nominate which one counts as your main residence for PRR. The nomination must normally be made within 2 years of the date your mix of residences changes (for example, when you acquire a second home). You can vary it later, subject to the rules.

Illustrative example: partial Private Residence Relief

Priya owns a property for 10 years. She lives in it as her main home for 5 years, then rents it out for 5 years. Her gain on sale is £100,000.

• Qualifying period: 5 years of occupation plus the final 9 months = 5.75 years
• PRR proportion: 5.75 / 10 = 57.5%
• Exempt gain: £100,000 x 57.5% = £57,500
• Remaining gain: £42,500
• Less annual exempt amount: £3,000
• Taxable gain: £39,500
• CGT at 24%: £9,480

For the detailed rules, see HMRC's Private Residence Relief helpsheet (HS283).

How can you reduce capital gains tax on a second home? {#second-home}

A holiday home or second property doesn't get PRR unless it has genuinely been your main home at some point. Here are the main levers.

1. Use both spouses' allowances and rates

Transfers of assets between spouses or civil partners (who are living together) are made on a no gain, no loss basis, so no CGT arises on the transfer itself. Your spouse takes over your original cost.

If you own the property jointly, you each use a £3,000 allowance, sheltering £6,000 between you. If one of you is a basic-rate taxpayer, part of their share of the gain may be taxed at 18% rather than 24%.

Illustrative example: 50/50 ownership

A couple sell a second home with a £50,000 gain, held jointly.

• Gain split 50/50: £25,000 each
• Less £3,000 allowance each: £22,000 taxable each
• If both are higher-rate, CGT at 24%: £5,280 each = £10,560 total

A single higher-rate owner would face (£50,000 - £3,000) x 24% = £11,280, so sharing ownership saves £720 here through the second allowance alone, with more if one spouse pays the 18% rate.

2. Offset capital losses

Capital losses on other assets, such as shares or another property, can be set against your property gain in the same year, and unused losses can usually be carried forward if claimed in time.

3. Mind the disposal date

The disposal date for CGT is normally the date contracts are exchanged, not completion. If you're selling close to 5 April, the exchange date decides which tax year's allowance and rates apply, so plan it deliberately rather than by accident.

If you're weighing up a sale, our capital gains tax calculator gives you a quick estimate before you commit.

How can you reduce capital gains tax on a buy-to-let property? {#buy-to-let}

Buy-to-lets don't qualify for PRR unless you've lived in the property as your main home. The reliefs and deductions below do most of the work.

Claim PRR if you lived there first

If you bought the property, lived in it, then let it out, you get PRR for the period you lived there plus the final 9 months.

Illustrative example: buy-to-let with earlier occupation

A landlord owns a property for 15 years: 5 years as their main home, then 10 years let. The gain is £200,000.

• Qualifying period: 5 years plus 0.75 years (final 9 months) = 5.75 years
• PRR proportion: 5.75 / 15 = 38.33%
• Exempt gain: £200,000 x 38.33% = £76,667
• Taxable gain: £123,333
• Less £3,000 allowance: £120,333
• CGT at 24%: £28,880

Without any PRR, the bill would be (£200,000 - £3,000) x 24% = £47,280, so the earlier occupation saves around £18,400.

Deduct every allowable cost

You can reduce the gain by deducting buying and selling costs and genuine capital improvements.

Deductible: stamp duty and legal fees on purchase, estate agent and legal fees on sale, and capital improvements such as an extension, a loft conversion or a first-time central heating installation.

Not deductible: mortgage interest, insurance, council tax, letting agent fees and routine repairs. These are income expenses, not capital costs.

Consider incorporation, carefully

Moving a portfolio into a limited company can change how future gains are taxed, but the transfer itself can trigger CGT and Stamp Duty Land Tax, and extracting profits later brings its own tax. It only suits a minority of landlords and needs proper advice first. Our team at Zmartly works with landlords on exactly this question.

Ten legal ways to reduce capital gains tax on property {#ten-ways}

1. Private Residence Relief. Full exemption where a property has been your only or main home throughout ownership.
2. Spouse or civil partner transfers. No gain, no loss on transfer, then use a second allowance and potentially a lower rate.
3. Joint ownership. Two £3,000 allowances instead of one.
4. Offset capital losses from shares, crypto or other property against the gain.
5. Deduct all allowable costs, including capital improvements you can evidence.
6. Time the disposal around the exchange date and the 5 April year-end.
7. Nominate your main residence within the time limit where you have more than one home.
8. Business Asset Disposal Relief (BADR) on qualifying business assets (see below).
9. Rollover Relief to defer the gain when you replace a business asset.
10. Keep careful records. Lost paperwork on improvement costs is lost relief.

What is Business Asset Disposal Relief and what rate applies?

BADR (formerly Entrepreneurs' Relief) gives a reduced CGT rate on qualifying disposals of a trading business, qualifying shares or associated business assets, subject to a £1 million lifetime limit.

The BADR rate is 14% for disposals on or after 6 April 2025 (2025/26). It had been 10%, and it is legislated to rise again to 18% from 6 April 2026.

Illustrative example: BADR on a business asset

A business owner makes a £500,000 gain on a qualifying disposal.

• Less £3,000 allowance: £497,000
• CGT at 14% (BADR): £69,580
• CGT at 24% without BADR: £119,280
• Saving: £49,700

See HMRC's Business Asset Disposal Relief helpsheet (HS275) for the qualifying conditions.

How does Rollover Relief work?

If you sell a business asset, such as commercial premises, and reinvest the proceeds in another qualifying business asset, you can defer the gain. The new asset must usually be bought in the window from 1 year before to 3 years after the sale, and the deferred gain reduces the new asset's cost for a future CGT calculation.

How do you reduce capital gains tax on commercial property? {#commercial}

Commercial property gains are taxed at the same 18% and 24% rates as residential property since 30 October 2024, but more reliefs are typically in play.

• BADR at 14% (2025/26) where the property is used in your trading business and the conditions are met.
• Rollover Relief where you reinvest proceeds in replacement business assets.
• Incorporation Relief where you transfer a business as a going concern in exchange for shares.
• Holding via a company, where gains are charged to Corporation Tax rather than CGT.

Illustrative example: BADR on commercial premises

A trader sells qualifying business premises at an £800,000 gain.

• Less £3,000 allowance: £797,000
• CGT at 14% (BADR): £111,580
• CGT at 24% without BADR: £191,280
• Saving: £79,700

On the Corporation Tax route, gains inside a company are taxed at 19% on profits up to £50,000 and 25% above £250,000 for the financial year 2025, with marginal relief in between. That can look cheaper than CGT, but you still face tax when you extract the money, so the comparison has to run end to end. Our corporation tax services page explains how we model that.

How does capital gains tax work on inherited property? {#inherited}

There's no CGT at the point you inherit a property. Inheritance Tax may be due on the estate, but that's a separate tax.

Your CGT cost is the probate value (the market value at the date of death), not what the deceased originally paid. So if you sell later, you're only taxed on the growth since you inherited.

Illustrative example: selling an inherited home

Someone inherits a property at a probate value of £350,000 and sells it two years later for £380,000.

• Gain: £30,000
• Less £3,000 allowance: £27,000
• CGT at 24% (higher-rate seller): £6,480

If you move in and make the property your main home before selling, PRR can cover the period you live there plus the final 9 months.

Do non-residents pay capital gains tax on UK property? {#non-resident}

Yes. Non-residents pay CGT on gains from UK residential and (in many cases) commercial property.

If you sell UK residential property and have CGT to pay, you must report it and pay through a UK Property Disposal return, generally within 60 days of completion. UK residents selling residential property at a gain face the same 60-day deadline. Missing it triggers HMRC penalties and interest.

If you lived in the property as your main home before leaving the UK, you can still claim PRR for that period plus the final 9 months.

How do you calculate capital gains tax on a property sale? {#calculator}

The basic method has four steps.

1. Work out the gain. Sale price minus purchase price minus allowable costs.
2. Deduct reliefs. PRR, BADR or others, where they apply.
3. Deduct your allowance. £3,000 per owner for 2025/26.
4. Apply the rate. 18% within your basic-rate band, 24% above it.

Illustrative example: a second home with no PRR

• Sale price: £400,000
• Purchase price: £250,000
• Buying and selling costs: £11,000
• Capital improvements (extension): £20,000
• Gain: £400,000 - £250,000 - £11,000 - £20,000 = £119,000
• Less £3,000 allowance: £116,000
• Higher-rate seller, CGT at 24%: £27,840

For a quick estimate of your own figures, use the Zmartly capital gains tax calculator. HMRC also publishes an official CGT calculator on gov.uk.

Get the relief you're entitled to

CGT on property is one of those taxes where the difference between a good plan and no plan is often thousands of pounds. The catch is that most reliefs have conditions and deadlines, and the 60-day reporting clock starts at completion.

If you're selling a second home, a rental or business premises, talk to a Zmartly accountant before you exchange. Book a free 20-minute call and we'll map out the reliefs you qualify for and the tax you can save: zmartly.co.uk/contact.

FAQs {#faqs}

How can I reduce capital gains tax on property in the UK?

The main routes are Private Residence Relief on a main home, transferring a share to a spouse or civil partner to use both £3,000 allowances and rates, deducting all allowable costs and capital improvements, offsetting capital losses, timing the disposal around the tax year-end, and, for business assets, Business Asset Disposal Relief or Rollover Relief.

How long must you live in a house to avoid CGT in the UK?

There's no fixed minimum period, but the property must genuinely be your only or main home. Full Private Residence Relief applies where it was your main home for the whole period of ownership. The final 9 months of ownership always qualify, provided it was your main home at some point.

What are the capital gains tax rates on property for 2025/26?

For 2025/26, residential and commercial property gains are taxed at 18% within your basic-rate band and 24% above it. Your rate depends on your total income plus gains; if your income already exceeds £50,271, the whole gain after your allowance is taxed at 24%.

What is the capital gains tax allowance for 2025/26?

The annual exempt amount is £3,000 per person for 2025/26. Spouses and civil partners who own a property jointly can each use their allowance, sheltering £6,000 between them. The allowance can't be carried forward.

What is the Business Asset Disposal Relief rate for 2025/26?

BADR is charged at 14% for qualifying disposals on or after 6 April 2025, up from 10% previously, with a £1 million lifetime limit. It is legislated to rise to 18% from 6 April 2026.

Do I pay CGT on inherited property?

There's no CGT when you inherit. Your cost for CGT is the probate value at the date of death, so you're only taxed on growth after that. If you later make it your main home, Private Residence Relief can cover that period plus the final 9 months.

When do I have to report and pay CGT on a UK property sale?

If you have CGT to pay on a UK residential property disposal, you generally have to report and pay it through a UK Property Disposal return within 60 days of completion. The same 60-day deadline applies to UK residents and non-residents.