How is Capital gains tax calculated on a property?

Capital Gains Tax is a tax payable on the gains (profits) from the sale an Asset.

There are different rates and thresholds available. Here we will look into UK residential properties that are not your main home and as such subject to Cap Gains tax.

Rates for Capital Gains Tax

The Capital Gains Tax rate you use depends on the total amount of your taxable income, so work that out first.

6 April 2017 onwards

The following Capital Gains Tax rates apply:

• 18% and 28% tax rates for individuals for residential property

Annual exempt amount limits

You only pay Capital Gains Tax if your overall gains for the tax year (after deducting any losses and applying any reliefs) are above the annual exempt amount.

There’s one annual exempt amount for:

• most individuals who live in the UK

You can use your annual exempt amount against the gains charged at the highest rates to reduce the amount of tax you owe.

Basic illustration:

Mr A with an annual income of £60k p.a., sells his rental property in 2023-24 year for £300k and makes a gain of £100k after allowing for purchase cost and other legal costs. His Cap Gains Tax liability will be as follows:

*Since Mr A’s annual income (60k) is already above the basic rate tax income threshold, the applicable CGT rate will be 28% on the whole amount of Gains.