When I sell my home, will I have to pay taxes?

The process of selling a home is already difficult, but it can get considerably more difficult and costly if capital gains tax is due

When buying a property, buyers must account for stamp duty costs, but sellers may question if they must pay taxes when listing their house for sale.

We examine whether taxes are due when selling a home.

Does selling a home entail paying capital gains tax?

In the UK, selling a home may result in the need to pay capital gains tax (CGT), and property owners will pay more due to recent reductions in CGT-free allowances.

The government levies a tax known as the capital gains tax (CGT) on the profits or gains you receive from the sale of property.

The amount of tax you pay is determined by your profit margin, which is typically the difference between the purchase price of your home and the sale price.

If you sell (or dispose of in HMRC terms) a house and receive a profit, you may be required to pay capital gains tax, but this is not always the case.

For instance, inherited property and buy-to-let properties may be subject to CGT. The regulations change if you sell your own house.

If you own the property jointly with others and CGT is due, you will need to calculate the gain for your portion of the property. The primary residence of a married couple or civil partners can only be one property at a time.

The costs of purchasing, selling, or renovating your property can be subtracted from your profit and are not included in your CGT bill.

These consist of expenses for improvements, such as an extension, and fees for solicitors and real estate agents. Decorating and other regular upkeep expenses are not included.

We examine 10 strategies to reduce your capital gains tax liability in a different post.

When you sell your house, do you still have to pay taxes?

Rules that continue to exempt your primary home from CGT mean that most people who sell their primary residence won't have to pay taxes.

According to Karen Noye, a mortgage specialist at Quilter, "You will receive full private residence relief as long as it has been your primary residence or only residence for the duration that you have owned it, and you haven't rented out a portion of it or used it solely for business."

That means that no matter how much the value of the property has increased, there will be no CGT to pay.

One of the biggest tax benefits still accessible to individuals in the UK is private residence relief, which offers a useful exemption during a period when other forms of allowance are being reduced significantly.

You must fulfill the following requirements in order to be eligible for the relief.

You have a single residence that you have used as your primary residence for the entirety of your ownership; you have not rented out any portion of it; you have not used a portion of it exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use); the grounds, including all buildings, are less than 5,000 square meters (just over an acre) in total; you did not purchase it with the intention of making a profit; and Noye says it is crucial for sellers to double check the rules because problems may arise if you have moved out before selling, if you have developed a portion of the property, or if it is unusually large.

Before exchanging contracts, she advises, "when in doubt, seek advice."

When I sell my house and rent it out, do I still have to pay taxes?

If you eventually rent out your primary residence, you may be required to pay capital gains tax when you sell it.

The exceptions are when your parents or kids live with you and pay your rent or housekeeping, or when you have a lodger who lives with you. In these situations, CGT would not be owed.

The length of time you lived in your house will determine how much CGT you paid. This is because some private residence relief will still be available to you.

Even if you weren't residing in the house at the time, you still receive full relief for the years you lived there and the final nine months you owned it. Therefore, there won't be any CGT due during that time.

For instance, let's say you sell your house and earn £150,000. After residing there for seven and a half years, you rented out the entire property for another seven and a half years.

For the entire period you resided there, which in this case was seven and a half years, private residence relief is applicable. Even though you weren't residing there, you also receive relief for the final nine months that you owned the property.

Ultimately, the CGT exemption for private residences is valid for eight years and three months, or 55% of the time you owned the property. Thus, you receive 55% of your gain as private residence relief.

This implies that 82,500 of the gain will not be subject to CGT. The gain that is not covered by private residence relief is your chargeable gain, which is the remaining 45% (54,000).

If you subtract the 3,000 annual CGT exemption allowance that everyone is entitled to, the total amount of taxes you must pay is 51,000.

Taxpayers with basic rates are required to pay 18 percent in capital gains tax, while those with higher and additional rates must pay 24 percent.

You will need to determine the percentage of your house that you lived in if you only rent out a portion of it. This portion of your gain is the only portion for which you receive private residence relief.

In the event that I sell my house, can I get letting relief?

You might be eligible for "letting relief" on the profits you make when you sell your house if you and your tenants shared a residence.

Letting relief is the lowest of the following: 40,000, the same amount you received in private residence relief, or the amount of the chargeable gain you made when renting out a portion of your house.

The chargeable gain you make while your house is vacant is not covered in any way by letting relief.

For instance, suppose you rent out a bedroom in your house, which is roughly 5% of the entire size of your house.

When you sell your house, you receive a £100,000 chargeable gain. You only receive private residence relief for 95,000 (95 percent of the total gain) because only 5% of your house was rented out.

However, you are also entitled to 5,000 in letting relief because the remaining 5,000 gain is related to the rented bedroom. You would not be subject to capital gains tax as a result.

When selling a second home, what taxes are owed?

The tax bills can really get to you when you sell a second property, whether it's a vacation house or a former buy-to-let. Noye notes, "Given that these sales do not qualify for private residence relief, any profit made since purchase will likely be subject to CGT."

The annual CGT exemption, which was 12,300 only a few years ago, is now frozen at just 3,000 for the 2025 - 2026 tax year.

Following this modest exemption, basic-rate taxpayers will pay 18 percent of the gain, while taxpayers with higher and additional rates will pay 24 percent.

The deadline for reporting and paying CGT on UK property sales is only 60 days from completion, which is a tight turnaround that some sellers miss, according to Noye.

Planning ahead is crucial to understanding what's due and whether any costs or losses can be offset, as many sellers may be looking at significant gains due to the growth in property prices over time.

When you already own a home, you sell an inherited property.

Even though you didn't purchase the property yourself, selling an inherited asset will typically result in a CGT liability if you already own your own house.

"The good news is that tax is due only on the increase in value since the date of inheritance, not the original purchase price your parents or relatives paid," Noye summarizes the relief.

You can use your 3,000 allowance and then pay CGT at 18 or 24 percent, depending on your income, according to the same tax regulations that apply to other second properties.

However, this can still result in a sizable tax bill, especially if the property is in a high-growth area or if there has been a significant delay between inheriting and selling.

According to Noye, "it's easy to forget there's a bill waiting when you do eventually sell, but inheriting a property doesn't attract CGT at the time."

It serves as a reminder that, if appropriate planning isn't done, even passing on the family home can result in a significant tax double whammy, as many estates are now subject to inheritance tax.

What is the CGT that I will be required to pay when I sell my home?

You can use the government calculator to calculate the amount of capital gains tax you will have to pay after you have sold your home and calculated your gain.

If you sold other chargeable assets during the tax year, like shares, the calculator won't be accurate because it only works with property.