Capital Gains Tax on Residential Properties Explained

In the recent Budget announcement, changes to Capital Gains Tax were brought in. Emma Gilroy, Director and Head of Residential Property at JCP Solicitors, explains when this may apply to you.

Capital Gains Tax is paid by the original owner upon disposal of property through gifting it to someone who is not your spouse or civil partner, selling for less than market value (often a family member or friend), or transferring the house into a trust.

It is worth noting that the exemption for a spouse or civil partner does not apply if you are separated.

The amount you pay upon disposal of the property depends on a number of factors, but is calculated on the profit of the disposal: the sale price minus the original purchase price, along with any legal fees and enhancement expenses allowable.

There is a principal private residence relief if the property has always been a primary residence throughout ownership, however, if gifting a property in which you have any lived for part of the time in which you have owned it, CGT may be due upon disposal.

For example, if you bought a home to live in as a primary residence for five years, but then moved out and kept the house as a holiday home, you would likely need to pay CGT if you gift the property to someone who is not your spouse or civil partner.  This means that capital gains can still apply even if the person who is gifted the property does not receive any proceeds from the gift.

There are some reliefs available, such as the Relief for Lettings or Periods of Non-Occupation if you have rented out the property or used it as a second home.

Tax rates for CGT depend on the amount of tax you pay. For 2024/25, the rates for CGT are 18% for a basic rate taxpayer (anyone earning below £50,270) and 24% for higher and additional rate taxpayers (income above £50,270). This has increased from the previous tax year, which was 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers.

Regardless of taxpayer status, all individuals are entitled to an annual exempt allowance of £3000 for this tax year, meaning any gain under this allowance will not be taxed.

If you believe you will need to pay CGT on the disposal of your property, you will need to report it and pay the tax due within 60 days of the completion date. Both parties need to report the gain separately if the property is jointly owned.

This is a specialist area and you should always seek professional tax advice from an accountant or tax specialist, if you have concerns or questions about Capital Gains Tax.

If you would like legal advice for residential property matters, JCP Solicitors can help. Call our team on 03333 208644 or email hello@jcpsolicitors.co.uk.