Calculating CGT on Property: A Step-by-Step UK Guide for 2026/27

Capital Gains Tax (CGT) is a critical consideration for any property disposal. Calculating the liability accurately requires a structured approach, encompassing acquisition costs, enhancement expenditure, available reliefs, and the correct tax rates. This guide provides a practical, step-by-step framework for calculating CGT on UK residential property for the 2026/27 tax year, ensuring you can confidently advise on the final tax position.

The Five-Step Calculation Process

A methodical approach simplifies the calculation. Follow these five steps to determine the CGT liability on a residential property disposal.

Step 1: Determine the Net Disposal Proceeds

First, you establish the value of the disposal. This begins with the sale price or market value of the property at the time of disposal. From this figure, you deduct the incidental costs of disposal.

Allowable disposal costs typically include:

• Estate agent fees
• Legal fees and conveyancing costs
• Advertising costs

Example: A property sold for £400,000 with disposal costs of £5,800 results in Net Disposal Proceeds of £394,200.

Step 2: Calculate the Base Cost

Next, you calculate the total cost of acquiring and improving the property. This ‘base cost’ includes the original purchase price plus any allowable costs associated with the acquisition and enhancement of the asset.

Allowable acquisition and enhancement costs include:

• The original purchase price.
• Incidental costs of acquisition (e.g., Stamp Duty Land Tax, legal fees, surveyor’s fees).
• Capital enhancement expenditure, which is money spent on improving the property that is reflected in its state at the time of disposal (e.g., building an extension). Costs of routine maintenance or redecoration are not allowable.

Example: A property acquired for £210,000 with acquisition costs of £3,100 and a £28,000 extension gives a Base Cost of £241,100.

Step 3: Calculate the Provisional Gain or Loss

With the net proceeds and base cost established, you can calculate the provisional gain.

Provisional Gain = Net Disposal Proceeds – Base Cost

Example: £394,200 (Net Proceeds) – £241,100 (Base Cost) = £153,100 (Provisional Gain).

Step 4: Deduct Allowable Losses and Reliefs

The provisional gain can be reduced by applying relevant reliefs and any allowable capital losses. This gives you the chargeable gain.

• Principal Private Residence (PPR) Relief: If the property was the owner’s only or main residence at any point, a significant portion of the gain may be exempt from CGT. The amount of relief is calculated based on the periods of occupation.
• Lettings Relief: This relief has been restricted since April 2020. It now only applies where the owner was in shared occupancy with a tenant.
• Other Reliefs: Various other reliefs may apply depending on the circumstances, such as for compulsory acquisition.
• Capital Losses: You can offset capital losses from the same tax year (realised before the property disposal) or losses brought forward from previous tax years against the gain.
• Annual Exempt Amount (AEA): For the 2026/27 tax year, each individual has an AEA of £3,000. This amount is deducted from the net gains after losses have been applied.

Step 5: Apply the Correct CGT Rate

The final step is to apply the appropriate CGT rate to the chargeable gain (the amount remaining after reliefs and the AEA). For residential property gains in 2026/27, the rates are determined by the individual’s income tax band.

CGT Rates and the Annual Exempt Amount (2026/27)

For the 2026/27 tax year, specific rates apply to gains on residential property.

CGT Rates for Residential Property

The rates are higher for residential property gains compared to most other assets.

These rates reflect changes introduced from 30 October 2024, which reduced the higher rate from 28% to 24% and harmonised the rates for most other assets to 18% and 24%.

To determine which rate applies, you must calculate how much of the individual’s basic rate income tax band remains available after accounting for their taxable income. Any part of the capital gain that falls within the remaining basic rate band is taxed at 18%; the excess is taxed at 24%.

The Annual Exempt Amount (AEA)

The AEA for 2026/27 is £3,000. This means the first £3,000 of an individual’s total net capital gains in a tax year are not subject to CGT. The AEA is applied after deducting any allowable losses but before calculating the tax due.

Key Reliefs for Property Disposals

Understanding available reliefs is essential for minimising a CGT liability.

Principal Private Residence (PPR) Relief (TCGA 1992, s 222)

PPR relief is the most significant relief for property gains. It fully or partially exempts a gain arising on the disposal of a property that has been the owner’s only or main residence.

Key elements include:

• Actual Occupation: The relief applies to the period the property was occupied as the main residence.
• Final Period Exemption: The final nine months of ownership are always treated as a period of occupation, regardless of whether the owner was living there (this period is extended to 36 months for individuals who are disabled or in a care home).
• Deemed Occupation: Certain periods of absence may also qualify for relief, for example, working abroad or elsewhere in the UK.
• Nominating a Main Residence: If an individual has more than one residence, they can nominate one as their main residence for CGT purposes within two years of the combination of residences beginning.

Lettings Relief (TCGA 1992, s 223B)

Since 6 April 2020, lettings relief is only available if the owner was in shared occupation with a tenant. The maximum relief is the lowest of:

1. The amount of PPR relief already given.
2. The amount of the gain attributable to the letting.
3. £40,000.

Reporting and Paying the Tax

For UK residents disposing of UK residential property where CGT is due, the gain must be reported and the tax paid within 60 days of the completion date. This is done via HMRC’s online ‘CGT on UK Property Account’.

A return is not required if the gain is fully covered by PPR relief, the Annual Exempt Amount, or allowable losses. Non-UK residents, however, must report all disposals of UK property, even if there is no tax to pay or a loss is made.

For definitive calculations and complex scenarios, particularly involving multiple properties, non-residency, or mixed-use properties, you should refer to HMRC’s Capital Gains Manual, specifically sections CG-APP18 (for the CGT on UK Property Account), CG64200 onwards (for Private Residence Relief), and the primary legislation in the Taxation of Chargeable Gains Act 1992.