By definition, the capital gains tax is a tax imposed upon the sale of a property or investment, especially one that’s increased in value. Different types of assets can also require varying tax amounts. For instance, the capital gains tax on inherited property can appear very different from the capital gains tax levied on sold company shares.
In this guide, we’ll have a close look at the ins and outs of capital gains tax on property. This means exploring the different rates of capital gains tax, the factors that can lead to certain allowances, the inheritance tax, and much more.
Capital Gains Tax: What You Pay It on, Rates and Allowances
In the United Kingdom, individuals typically pay capital gains tax on property and personal possessions with a valuation of £6,000 or higher. Typically, your car and main home don’t require capital gains tax; however, this can change if either one of these properties is extremely large, used for business purposes, or sublet out. Individuals in the United Kingdom can also expect to pay capital gains tax on business assets and shares that don’t fall within a PEP or ISA.
Understanding the Different Rates of Capital Gains Tax
The rates of capital gain tax inherently vary, especially when you’re dealing with business assets vs. residential property. It’s also important to remember that individuals deemed as personal representatives or trustees should also know how much is capital gains tax on property.
The main rates currently stand at 10% for unused basic rate band gains. For higher-rate taxpayers, this increases to 20%.
For residential property disposals, the capital gains tax rate stands at 18% for unused basic rate band gains yet goes up to 24% for higher rate taxpayers.
On carried interest, unused basic rate band gains are subject to 18% of capital gains tax though higher rate taxpayers face a 28% rate.
As we explore capital gains tax on property, we’d be remiss not to cover disposals. Any disposals that are authorized under the Business Asset Disposal Relief and Investors’ Relief are subject to a 10% capital gains tax. For trustees of personal representatives and settlements, capital gains tax for disposals can increase to 20%, 24%, or 28%.
Recent Changes to Allowances in the UK
Many people understandably want to avoid capital gains tax on inherited property. However, recent changes to the UK’s allowances have made this increasingly more challenging. During the 2022/2023 tax year, the government granted an allowance of £12,300. However, the 2024/2025 tax year saw this significantly reduce to just £3,000.
Despite these new alterations to tax allowances, people who sell their main homes in the UK are still typically spared from having to pay capital gains tax.
Capital Gains Tax on Property When Selling
Knowing how much capital gains tax on property when selling is essential for landlords and other property owners. Under UK law, anyone who sells a property that isn’t their main residence will owe the government capital gains tax within a 60-day time period.
Tax When You Sell Property
When selling property, landlords are granted £3,000 of allowance, meaning they won’t owe capital gains tax on any profits that fall under this amount. However, when profits exceed the allowance permitted, the capital gains tax kicks in.
For the basic rate taxpayers, they’ll owe a rate of 18%. Additional rate or higher taxpayers, on the other hand, will owe 24% of capital gains tax on property.
Whenever you’re selling property in the UK, it’s important to be mindful of how much you’ll owe the government. If you’re unsure of the amount, the UK government has an online calculator for capital gains tax on property. Upon visiting the website, you can enter the necessary details to figure out how much, if any, capital gains tax you owe.
Disposing of an Asset
Many people are eager to know how to avoid capital gains tax on inherited property. UK rules dictate that any asset, inherited or otherwise, is “disposed of” once it’s sold. As such, those who are wondering how much capital gains tax on property that’s disposed of varies depending on the property’s valuation.
If you dispose of an asset worth £6,000 or more, you can expect to pay a capital gain tax ranging anywhere from between 10% to 28%. Your specific dues will also be impacted by whether or not you’re a higher-rate taxpayer, trustee, or personal representative.
People in the UK who dispose of an asset that’s worth less than £6,000, on the other hand, will typically not owe the government any capital gains tax.
Which Properties Accumulate Capital Gains Tax?
In this guide so far, we’ve explored varying capital gains taxes, individual allowances, and what it means to dispose of an asset in the UK. Now, we’ll have a more in-depth look at the various properties that acquire capital gain tax upon disposal.
Contrary to certain misconceptions, homes, offices, and other similar forms of real estate aren’t the only assets that accumulate capital gains tax. In the UK, people will also owe a tax on the profits they reap from selling artwork, cryptocurrencies, shares, fine jewelry, and even selected antiques.
With that in mind, capital gains tax on property can oftentimes be avoided if you’re selling to a civil partner or spouse.
Inheritance Tax vs. Capital Gains Tax in the UK
Whenever you inherit property or assets, it’s important to understand the complexities of the inheritance tax. You’ll also need to know whether or not you’ll, at any point, be obligated to pay capital gains tax, especially if you plan to dispose of an inherited asset.
Under the UK’s current laws, the personal representative managing the estate (or property) in question will pay inheritance tax on the asset before transferring it over to you. Then, should you owe any additional inheritance tax, you’ll be contacted by the HM Revenue and Customs (HMRC).
In most cases, you’ll hear from HMRC if the asset you inherited was placed in a trust that couldn’t pay taxes owed. Likewise, the same applies if the aforementioned personal representative fails to pay the inheritance tax. You may also be contacted by HMRC if the deceased individual you’re inheriting from passed along the asset seven years before their death.
Should you decide to sell a property or asset you inherited, that’s when capital gains tax kicks in. If you don’t sell, yet still reap monetary profits from an inheritance, then you’ll owe income taxes on the profit. This is commonly seen with rental income from real estate and dividends on shares.
Legal Ways to Reduce Your Capital Gains Tax
Failing to pay your dues to the government can come with hefty legal consequences and punitive fees. Thankfully, for folks wondering how to avoid capital gains tax on inherited property, UK laws have some caveats that generally come in handy.
You’ll find the most effective ways to reduce your tax bill include not just claiming your allowance. Any losses you garner during asset disposal, along with any accumulated costs during your periods of ownership, will have a role to play.
Don’t Forget About Your Losses
Aside from using your £3,000 allowance, you’ll also want to be mindful of any losses you incur when selling assets. Not all sales come with profit. Therefore, when you dispose of an asset yet fail to reap a profit, you can use this loss to reduce gains garnered elsewhere.
In doing this, it organically reduces what you owe in capital gain tax. Many people in the UK forget about this and miss out on saving thousands of pounds. Over the years, even modest losses can add up ,and you deserve to have this taken into account when tax season rolls around.
Take Applicable Cost Deductions into Account
Just like taking your losses into account matters, so does remembering cost deductions. When it comes to capital gains tax on inherited property (or other assets), specific costs can be subtracted from the disposal’s profit.
For instance, the costs you incurred from purchasing an asset (such as stamp duty and estate agent fees) can be subtracted from your total gain, thus reducing your taxes. When working with a home or apartment, various improvements made to the space (such as renovations) can be included as a cost deduction.
If you have questions about which cost deductions you may be eligible for, don’t hesitate to reach out to a qualified professional advisor. This assures you get all the answers you’re looking for without missing out on available tax breaks.
Do Non-Residents Pay Capital Gains Tax on Property?
Individuals who own property or land in the UK yet aren’t residents of the country still pay capital gains tax at the aforementioned rates. However, for non-residents only, additional UK assets (such as company shares) are free of capital gains tax under the following circumstances;
- You don’t return to the UK for more than five years after your departure
- You don’t sell shares in a UK property-rich company or qualify for an indirect disposal
Under UK law, a company is only deemed as “property rich” if at least 75% of its gross asset value contains UK land.
Non-residents of the UK who owe capital gains tax on asset disposals can typically claim the £3,000 allowance. However, companies that opt to sell UK residential assets are not permitted to claim this allowance. In most cases, these companies will have alternate allowances at their disposal.
Penalties For Failure to Pay Capital Gain Tax on Property in the UK
Missing the deadline(s) for paying capital gains tax on inherited property or other assets can quickly add up. A starter penalty of £100 on the first day after payment was due first kicks in. Next comes a £10 daily penalty for 90 days once your capital gains taxes are three months late.
By the time payment is six months to one year late, UK penalties increase to 5% of your liability to tax or £300, depending on which amount is greater. As one might imagine, punitive dues of this nature can quickly add up, amounting to potentially thousands of pounds. This is by design, as the UK wants everyone to pay their capital gains tax by the applicable deadlines.
However, the government also understands that circumstances outside of someone’s control can sometimes cause them to be late. Therefore, the aforementioned penalties are potentially avoidable if you have a reasonable excuse for failing to make on-time payments.
Reasonable excuses can vary from person to person. As such, they should be conveyed to the HMRC and/or the officer carrying out the check. If you’re unsure about whether or not a specific circumstance in your life qualifies as a reasonable excuse, you can get further clarity from the HMRC or a tax advisor.
Conclusion
Throughout this guide, we’ve explored the various intricacies of capital gains tax on property in the UK. In doing so, you’ve been able to learn about tax allowances, varying rates, and recent legal changes that impact what you owe on asset disposals. We’ve also had a look at the varying properties that accumulate tax and discovered legal ways of reducing what you owe on capital gains.
With this 2025 guide, you no longer have to wonder how to avoid capital gains tax on inherited property. UK law has several options that allow for inheritors to avoid paying hefty sums of pounds in most cases. Claiming your allowance is important to remember, as it includes your losses and incurred costs.
The information we’ve covered can prove beneficial to UK residents and non-residents alike. It will certainly come in handy for anyone owning property (or other assets in the country) that are subject to capital gains tax.
If you found this guide about capital gains tax on inherited property/owned property to be insightful, feel free to share it with others. Finally, if you have any questions about your specific asset disposals or other related matters, a professional tax advisor can assist.
Frequently Asked Questions
How much Capital Gains Tax will I pay on sale of property?
The amount of Capital Gains Tax (CGT) you pay on the sale of a property depends on several factors. Those include your income tax bracket and the type of property you’re selling. If you’re a basic-rate taxpayer, you’ll typically pay 18% CGT. Higher-rate taxpayers usually pay 28%. However, it may change depending on your personal situation.
Can I avoid Capital Gains Tax on property legally?
There are legal ways to minimize your tax liability. One common method is utilizing the Capital Gains Tax Allowance. It allows you to make a certain amount of profit each year without paying CGT. Additionally, if the property you’re selling qualifies as your primary residence, you might be eligible for Private Residence Relief. This time, you can significantly reduce or eliminate your CGT liability.
What is the basic rate of Capital Gains Tax property?
The basic rate of CGT for property is typically 18%. However, this rate can be influenced by various factors, including your income level and the specific rules applicable to your situation.
Besides these, remember there are many types of taxes you might be responsible for including the possible obligation to pay income tax yearly, property capital gains tax, or corporation tax.
