Capital Gains Tax on Property: What You Need to Know

Capital gains tax (CGT) is one of those subjects that property owners in London often don't think about until they're about to sell — and then scramble to understand in a hurry. If you're selling a property that isn't your main home, CGT almost certainly applies. And how you handle the valuation can make a significant difference to your tax bill.

What is Capital Gains Tax on Property?

Capital gains tax is charged on the profit ("gain") you make when you sell an asset that has increased in value. For residential property in the UK, CGT applies to any property that isn't your primary private residence — including:

• Buy-to-let properties
• Second homes and holiday cottages
• Inherited properties that you subsequently sell
• Properties you've previously lived in but now rent out
• Commercial properties (at different rates)

Your main home is generally exempt from CGT under "Private Residence Relief" — but there are rules about what qualifies, particularly if you've lived there for only part of the ownership period.

CGT Rates for Property

As of 2024/25, the CGT rates on residential property are:

• 18% for basic rate taxpayers
• 24% for higher and additional rate taxpayers

These rates apply to the gain after deducting the annual CGT exempt amount (£3,000 in 2024/25) and any allowable costs (solicitor's fees, estate agent commissions, improvement costs).

How a RICS Valuation Can Help

Here's where it gets interesting. The "gain" is calculated as the difference between what you sold the property for and what you paid for it (or its value when you inherited it). If you don't have a clear record of the acquisition cost or value, HMRC will use assumptions that often work in their favour, not yours.

A retrospective RICS valuation can establish the value of a property at any point in the past — for example:

• The value at the date you inherited a property (this becomes your baseline for CGT)
• The value at April 1982 (for properties owned before that date, a rebasing is available)
• The value at the date a property changed from primary residence to rental

If the baseline value is established accurately, your taxable gain may be significantly lower than HMRC's default calculation. This can translate to thousands of pounds in tax savings.

"A landlord came to me after selling a Battersea buy-to-let he'd owned since 2003. He'd paid £285,000 for it and sold for £680,000. Without a proper review, his total gain would have appeared to be £395,000. But he'd made significant capital improvements — a new roof, a rear extension, a full kitchen renovation. A retrospective valuation also confirmed the property had dropped in value during a specific period. His actual liable gain, properly calculated, was considerably lower."— Sarah Mitchell, AssocRICS

Inherited Property and CGT

When you inherit a property and later sell it, your gain is calculated from the value at the date of death — not the original purchase price. This is called the "probate value."

This is why it's important to have an accurate probate valuation carried out at the time of death. A low probate valuation may seem advantageous for inheritance tax, but it creates a higher baseline gain for CGT when the property is sold. These tax considerations need to be balanced carefully.