What is Capital Gains Tax?

What is Capital Gains Tax?

As a property investor in the UK, you've likely heard the term Capital Gains Tax (CGT) thrown around. But what exactly is it, and how does it affect your investment strategy? Let's break it down in simple terms.

So, how does CGT work in practice?

Let's say you bought a property for £200,000 and sold it for £300,000. Your initial thought might be that you've made a £100,000 profit. However, CGT isn't quite that straightforward. You can deduct certain costs from this figure, such as legal fees, estate agent fees, and any money spent on improving the property. These are known as 'allowable costs’.

When do you pay it?

You pay CGT when you sell a property that isn't your main home. So if you're selling a holiday home or a house you've been renting out, you'll likely need to pay CGT.

How much do you pay?

As of 2025, you get to keep the first £3,000 of your gain tax-free. After that, you'll pay either 18% or 28% tax on the rest, depending on how much other income you have.

Can you pay less?

Yes! There are a few tricks:

1. Timing -Sell properties in different tax years to use more of those £3,000 allowances.

2. Team up - If you're married, you can share the property with your spouse to double your tax-free amount.

3. Keep receipts - Money you've spent improving the property can be subtracted from your gain, lowering your tax bill.

4. Invest wisely - There are special investment schemes that can help you delay or reduce your CGT.

Recent changes:

The government has made CGT a bit tougher lately. They've lowered the tax-free amount and increased some of the rates. If you're an overseas investor, there are even more changes coming.

The Bottom Line:

CGT can take a big chunk out of your profits when you sell a property. But if you plan ahead and keep good records, you can often reduce what you owe. It's always a good idea to talk to a tax expert who can look at your specific situation and help you pay the right amount - no more, no less.