Tax Considerations
When Selling Property

When you sell a property that is not your main home — such as a buy-to-let, a second home, or an inherited property — any profit you make may be subject to Capital Gains Tax (CGT). CGT is calculated on the gain (the difference between what you paid and what you sell for), not the total sale price.

The current CGT rate applicable to gains made on the sale of residential property is 24% (as of 2024). This is payable regardless of whether you intend to reinvest those gains elsewhere.

There is an Annual Exempt Amount (sometimes called the tax-free allowance) for Capital Gains Tax. For the 2024/25 tax year this stands at £3,000. Any gains above this threshold may be liable to tax.

Various reliefs may be available that could reduce the amount of CGT you pay — for example, Private Residence Relief if the property was your main home at any point during ownership, or Letting Relief in certain circumstances. The availability and extent of these reliefs depends on your individual situation.

Stamp Duty Land Tax (SDLT) is a government tax payable on the purchase of property or land above a certain price threshold in England and Northern Ireland. Different rates apply at different price bands.

If purchasing a new residential property means you will own more than one property, an additional surcharge of 5% is typically applied on top of standard SDLT rates.

In Scotland, the equivalent tax is Land and Buildings Transaction Tax (LBTT). In Wales, it is Land Transaction Tax (LTT). Different rates and thresholds apply in each nation.

SDLT thresholds and rates are set by the government and can change — it is important to check the current figures at the time of any transaction.

If you let out a property, any rental income you receive must be declared to HMRC — whether you make a profit or not. All records, invoices, receipts and statements should be kept for up to six years.

HMRC applies different requirements depending on which income bracket you fall into. Certain allowable costs can be deducted from your rental income before calculating the tax owed, including maintenance and repair costs, letting agent fees, and insurance premiums.

Since April 2020, mortgage interest relief for residential landlords has been restricted to 20% (the basic rate of income tax). This replaced the previous system where mortgage interest could be deducted in full from rental income.

Prior to April 2016, landlords of fully furnished properties could claim a Wear and Tear Allowance of 10% of net rental income. This has since been replaced.

The current relief — known as Replacement of Domestic Items Relief — allows all residential landlords to deduct the cost of replacing furnishings, appliances and kitchenware on a like-for-like basis (or the nearest modern equivalent). Any proceeds received from disposing of the old item are deducted from the claimable amount.

If you are not a UK tax resident and you use a letting agent to manage your property, you may be able to apply for an exemption under the Non-Resident Landlord Scheme, allowing rent to be paid to you gross (without tax deducted at source).

Non-UK residents selling UK residential property are also required to report any gain to HMRC and pay any CGT due within 60 days of completion.

Property forms part of your estate for Inheritance Tax purposes. If the total value of your estate exceeds the current nil-rate band threshold (£325,000 as of 2024/25, with an additional Residence Nil-Rate Band available in certain circumstances), Inheritance Tax may be payable at 40% on the amount above the threshold.

Residential property passed to a direct descendant may benefit from the Residence Nil-Rate Band, subject to eligibility criteria.