Capital Gains Tax (CGT) is paid on the difference between what it costs to acquire or purchase an asset, and its disposal or sale price. Our introductory guide to the basics of Capital Gains Tax looks at how CGT works with a range of assets, but in this article our focus in on what it means for property.

When we talk about Capital Gains Tax we tend to talk about ‘disposing’ of the asset, or a ‘disposal’. It’s a crucial point because money doesn’t actually need to change hands in order to trigger Capital Gains Tax.

As well as selling your asset, a disposal can mean transferring it to a third party that isn’t a spouse, civil partner, or charity, for instance. To calculate the ‘gain’ in that situation, you’ll use the market value at the time.

In other words, you might still need to think about Capital Gains Tax, even if you didn’t actually make a sale.

Inheriting a property normally falls within Inheritance Tax rules rather than Capital Gains Tax, although you may need to pay capital gains if you then go on to dispose of the property at a later date.

Not all of your assets are considered ‘chargeable’ and liable for Capital Gains Tax, so you won’t normally need to pay it if you sell the home you live in. You might need to pay Capital Gains if you dispose of:

• A property which isn’t your main home
• Your main home if you let all or part of it out (although this doesn’t include having a lodger), use it for a business, or if it’s very large (5,000 square metres or more)
• Business assets, including commercial property

Capital Gains Tax is charged as a percentage of the profit you make when you dispose of the asset. The rate varies depending on the type of asset you need to pay tax for, and the rate of income tax you normally pay. Basic rate taxpayers must pay 18% of the profit they make from residential property. Higher rate taxpayers pay 24% on disposals made from 6th April 2024 onwards (or 28% before that).

HMRC won’t automatically send you a bill for any chargeable gains, so it’s your responsibility to report a Capital Gain and pay tax on it. There can be hefty penalties for failing to report or pay tax on time! The way you report a chargeable gain for Capital Gains Tax depends on what you need to report.

Assets that are not residential property

• You can report these through your Self Assessment tax return if you normally submit one
• Report the gain by 31st December in the tax year after the disposal
• Pay any Capital Gains Tax you owe by 31st January

For example, a chargeable gain you made in the 2023/24 tax year (6th April 2023 – 5th April 2024) must be reported by 31st December 2024, and the tax paid by 31st January 2025.

How do I report gains if I don’t normally submit a Self Assessment tax return?

If you aren’t registered for Self Assessment, you can report a chargeable gain using HMRC’s real-time online Capital Gains Tax Service. The deadlines are the same as for reporting and paying under Self Assessment.

Special rules for reporting the chargeable gains on residential property

The rules for reporting chargeable gains on the disposal of residential property are different to disposals of other assets.

• You cannot report gains on residential property using the real-time Capital Gains Tax Service or Self Assessment
• You must report the gain within 60 days of disposal

Failure to report the gain within 60 days may result in penalties and interest on the amount due. You’ll need to open an online CGT on UK property account using your Government Gateway ID. If you can’t use this service, you can request a paper form from HMRC.

In order to report a gain, you’ll need some key information to calculate it, including:

• The amount you bought and disposed of the asset for. You must use the market value of the asset if it was transferred without payment, or if the disposal was significantly above or below market value.
• Evidence of how you determine the market value. HMRC can challenge this and make their own assessment if they don’t agree with yours.
• The dates of acquisition and disposal
• Any costs involved in the purchase or disposal, including legal fees, valuation costs, and agent’s fees
• The cost of any improvements or refurbishment
• Documentary evidence of all the above

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