How Can I Reduce My Capital Gains Tax When Selling a Property

Introduction

At Towerstone Accountants we provide specialist property accountant services for landlords property investors and individuals dealing with property tax and reporting obligations across the UK. This article has been written to explain How can I reduce my Capital Gains Tax when selling a property in clear practical terms so you understand how the rules apply in real situations. Our aim is to help you make informed decisions avoid costly mistakes and know when professional advice is worthwhile.

Capital Gains Tax is charged when you sell or dispose of an asset, such as a second home, buy-to-let property, or piece of land, for more than you paid for it.

Your capital gain is the difference between the sale price and the amount you originaAs a chartered accountant running my own firm, this is one of the most common and most important questions I am asked by landlords and property owners. Capital Gains Tax on property sales can be substantial, especially now that allowances have reduced and reporting deadlines have tightened. Many people only start thinking about CGT once a sale is already underway, but by then, most of the best planning opportunities have already passed.

The good news is that there are legitimate and well established ways to reduce Capital Gains Tax when selling a property. The bad news is that many of the shortcuts and tips you see online either no longer work or were never acceptable to HMRC in the first place. In this article, I want to explain clearly and practically how you can reduce your Capital Gains Tax when selling a property, what HMRC actually allow, and where professional planning genuinely makes a difference.

This is written exactly how I explain it to clients, grounded in UK tax rules, real world experience, and a strong focus on doing things properly rather than risking future problems.

Start with the most important point, timing matters

The single biggest factor in reducing Capital Gains Tax is timing. CGT planning works best before you sell, not after.

Once contracts are exchanged, the disposal has effectively happened for tax purposes, and most planning options are gone. This is why early advice is so valuable.

If you are even thinking about selling a property in the next year or two, that is the right time to start planning.

Understand how Capital Gains Tax is calculated

Before looking at ways to reduce CGT, it is essential to understand what is actually being taxed.

Capital Gains Tax is charged on the gain, not the sale price.

The basic calculation is:

Sale proceeds
minus
Original purchase price
minus
Allowable purchase and sale costs
minus
Allowable improvement costs
minus
Any reliefs
minus
Your annual CGT allowance

The result is the taxable gain, which is then taxed at the relevant CGT rates.

Every legitimate CGT saving works by reducing one of these elements.

Make sure you claim all allowable costs

One of the easiest and most overlooked ways to reduce CGT is ensuring all allowable costs are included.

Allowable costs that reduce the gain include:

• Stamp Duty Land Tax paid when you bought the property

• Legal fees on purchase and sale

• Estate agent fees

• Survey and valuation fees related to buying or selling

• Certain mortgage arrangement fees if directly linked to purchase

These costs are often forgotten years later, particularly where paperwork is missing. Reconstructing records can significantly reduce the gain.

Identify genuine capital improvements properly

Capital improvements can make a major difference to the CGT bill, but they must be claimed correctly.

Capital improvements are works that:

• Add value to the property

• Extend the property

• Improve it beyond its original condition when purchased

Examples include:

• Extensions

• Loft conversions

• Structural alterations

• Upgrading a kitchen or bathroom where it replaces something inferior

• Converting a house into multiple units

Routine repairs and maintenance cannot be deducted from the gain, even if they were expensive. This distinction is one of the most common HMRC challenge areas.

Keep evidence of improvement costs

HMRC will expect evidence.

Good evidence includes:

• Invoices

• Contracts

• Bank statements

• Before and after descriptions

• Planning documents where relevant

If you cannot evidence an improvement, HMRC may disallow it. Keeping records for the life of the property is essential.

Use your annual CGT allowance effectively

Each individual has an annual CGT allowance, which reduces the taxable gain.

While the allowance is now much smaller than it used to be, it is still valuable.

If a property is jointly owned:

• Each owner has their own CGT allowance

• This can double the allowance available

Ensuring ownership is structured correctly well before sale can make a real difference.

Consider transferring ownership to a spouse before sale

Transfers between spouses or civil partners who are living together are generally free of Capital Gains Tax.

This creates a powerful planning opportunity.

By transferring a share of the property to your spouse before selling, you may be able to:

• Use both CGT allowances

• Use a lower CGT rate if your spouse is a basic rate taxpayer

• Reduce the overall tax bill significantly

This must be done before exchange of contracts and supported by proper legal documentation.

Be careful with mortgage and stamp duty implications

While spouse transfers are usually CGT free, they can still have other implications.

If there is a mortgage on the property:

• Lender consent may be required

• The transfer may involve taking on debt

• Stamp duty may apply if mortgage debt is transferred

This is why tax planning and legal advice need to work together.

Manage your income level in the year of sale

Capital Gains Tax rates depend on your income.

Residential property gains are taxed at:

• 18 percent to the extent they fall within the basic rate band

• 28 percent for gains above that band

If your income is high in the year of sale, more of the gain will be taxed at 28 percent.

In some cases, it may be possible to reduce taxable income in the year of sale by:

• Making pension contributions

• Timing bonuses or dividends

• Delaying other income where commercially possible

This can increase the portion of the gain taxed at the lower rate.

Use capital losses to offset gains

Capital losses are extremely valuable.

If you have capital losses from:

• Previous property sales

• Share disposals

• Other investments

These can usually be offset against property gains.

Losses must be claimed to HMRC to be used, and unused losses can be carried forward indefinitely.

Reviewing your loss position before selling is essential.

Consider selling assets in the right order

If you hold multiple assets, the order in which you sell them can affect CGT.

For example:

• Realising losses before gains allows them to be offset

• Spreading disposals across tax years may allow multiple CGT allowances to be used

This kind of sequencing can significantly reduce overall tax.

Private Residence Relief if the property was ever your home

If the property was ever your main home, Private Residence Relief may reduce the gain.

Relief usually applies to:

• The period you lived in the property

• The final period of ownership, even if rented out

The longer you lived in the property, the greater the relief.

Accurately calculating this relief can substantially reduce CGT.

Be realistic about letting relief

Letting relief used to be very generous. It is now very limited.

Letting relief only applies where:

• You lived in the property at the same time as your tenant

• There was shared occupation

For most buy to let properties, letting relief no longer applies.

Relying on outdated advice here is a common mistake.

Joint ownership and CGT planning

Where a property is jointly owned, each owner is taxed on their share of the gain.

This means:

• Each owner uses their own CGT allowance

• Each owner applies their own tax rate

Reviewing ownership proportions before sale can unlock CGT savings, but this must reflect genuine ownership.

Do not assume bank accounts or rent history matter

CGT follows ownership, not who paid the mortgage or received the rent.

HMRC will look at:

• Land Registry records

• Declarations of trust

• Legal ownership documents

Trying to manipulate CGT through informal arrangements is risky and often unsuccessful.

Consider selling in stages where possible

In some limited cases, it may be possible to dispose of interests in stages over multiple tax years.

This can:

• Spread gains

• Use multiple CGT allowances

• Reduce the overall tax rate

This is complex and only suitable in specific situations, but it can be effective.

Be aware of the 60 day reporting and payment rule

When you sell a UK residential property and CGT is due, you must:

• Report the gain to HMRC within 60 days of completion

• Pay the estimated CGT within the same 60 day period

Missing this deadline results in automatic penalties and interest.

Planning should include ensuring funds are available to pay CGT on time.

Do not confuse CGT with income tax planning

CGT planning is separate from rental income tax planning.

Things that reduce rental income tax do not necessarily reduce CGT, and vice versa.

This is why a holistic view of property tax is so important.

Be cautious about using companies purely for CGT reasons

Some people consider transferring property into a limited company to reduce CGT.

This is rarely effective for existing properties because:

• CGT usually arises on the transfer

• Stamp duty may apply

• There may be refinancing costs

Companies can be useful for future acquisitions, but they are not a simple CGT fix for existing holdings.

Watch out for connected party rules

Sales or gifts to family members are subject to special rules.

HMRC often substitute market value for actual sale price.

Trying to reduce CGT by selling cheaply to a family member rarely works and often creates problems.

Keep an eye on future plans and life events

CGT planning should consider wider life events such as:

• Retirement

• Changes in income

• Emigration or return to the UK

• Marriage or divorce

• Estate planning

These can all affect the timing and tax treatment of property sales.

Avoid aggressive or artificial schemes

If something sounds too good to be true, it usually is.

HMRC actively challenge:

• Artificial arrangements

• Circular transactions

• Schemes designed solely to avoid tax

The penalties and stress involved often outweigh any perceived saving.

When professional advice is essential

In my professional opinion, CGT advice is essential where:

• The gain is significant

• The property was ever your home

• The property is jointly owned

• There have been major improvements

• You own multiple properties

• You are close to tax band thresholds

• A sale is planned within the next year

The cost of advice is usually far lower than the tax saved or the penalties avoided.

Common mistakes I see people make

In practice, the most common CGT mistakes include:

• Leaving planning too late

• Forgetting allowable costs

• Misclassifying repairs as improvements

• Missing reporting deadlines

• Not using spouse allowances

• Relying on outdated reliefs

• Assuming HMRC will not notice

Most of these are avoidable with early planning.

A practical approach to reducing CGT

From real world experience, the most effective CGT reduction strategies are usually a combination of:

• Correct cost identification

• Ownership planning

• Timing sales carefully

• Using allowances and losses properly

• Managing income in the year of sale

There is rarely a single magic solution.

Final thoughts from real world experience

So, how can you reduce your Capital Gains Tax when selling a property. The honest answer is through careful, lawful planning carried out before you sell, not after. CGT is not about clever tricks. It is about understanding the rules, keeping good records, and making informed decisions at the right time.

In my experience, the biggest CGT savings come not from aggressive schemes, but from doing the basics properly and combining them intelligently. Where people struggle, it is usually because they act too late or rely on assumptions rather than advice.

If there is one takeaway, it is this. Capital Gains Tax is predictable if you plan for it. Leave it until the sale completes, and it becomes a costly surprise.lly paid, after deducting any allowable costs and reliefs. CGT applies only to the profit, not the total sale value.

Understanding how the tax works before you sell can help you make informed decisions and reduce your liability.

How Capital Gains Tax is calculated on property

When you sell a property, your taxable gain is calculated as:

Sale price (Purchase price + Allowable costs + Reliefs) = Taxable gain

Allowable costs can include:

Solicitor and estate agent fees.

Stamp Duty Land Tax paid when you bought the property.

Costs of improvements such as extensions, new kitchens, or structural work.

You cannot deduct costs of maintenance, repairs, or mortgage interest.

After deducting allowable costs, you can also use your annual CGT allowance, which is £3,000 for the 2024 25 tax year.

CGT rates on property are:

18 percent for basic rate taxpayers.

24 percent for higher and additional rate taxpayers.

Your total income and the size of your gain determine which rate applies.

1. Claim Private Residence Relief

If the property you are selling was your main home for part or all of the time you owned it, you may qualify for Private Residence Relief (PRR).

This relief exempts the portion of the gain that relates to the time you lived in the property as your main residence. You also get relief for the final nine months of ownership, even if you were not living there during that period.

Example

You owned a property for 10 years and lived in it for 6 years before renting it out. You will receive PRR for 6 years plus the final 9 months, meaning only the remaining 3 years and 3 months are taxable.

If the property was once your main home, this relief can significantly reduce your taxable gain.

2. Use Letting Relief (in limited cases)

Letting Relief can further reduce CGT if you rented out a property that was once your main residence.

Since 2020, Letting Relief only applies if you lived in the property at the same time as your tenants, such as when you rented out a spare room.

In that case, you can claim up to £40,000 in relief (£80,000 for a couple).

Although this relief is now limited, it can still benefit homeowners who shared their property with tenants.

3. Deduct all allowable costs

Make sure you claim every legitimate cost associated with buying, improving, and selling the property.

Typical allowable costs include:

Legal fees for buying and selling.

Stamp Duty and survey costs.

Advertising and estate agent fees.

Building improvements, such as an extension, conversion, or new roof.

These costs reduce your taxable gain, so keeping receipts and invoices is essential.

4. Time your sale carefully

The timing of your sale can affect how much tax you pay. If you expect your income to be lower in a future tax year, delaying the sale could move you into a lower tax band.

You could also sell part of the property in one tax year and the rest in the next to spread the gain across two annual allowances.

If you are married or in a civil partnership, transferring part of the property to your partner before selling can double your annual CGT allowance and make use of their lower tax band.

Example

If you own a property jointly, each of you can use your £3,000 CGT allowance, giving a combined £6,000 tax-free gain. If one partner pays basic rate tax and the other pays higher rate, transferring ownership before selling can reduce the overall rate of tax paid.

5. Offset capital losses

If you have made losses on other investments, such as shares or crypto, you can offset them against your property gain to reduce your taxable amount.

You must report losses to HMRC within four years of the end of the tax year in which they occurred. Any unused losses can be carried forward indefinitely and used to offset future gains.

6. Use your spouse or civil partner’s allowances

Property transfers between spouses or civil partners are exempt from CGT. This allows you to share ownership of a property before selling, so you can:

Double your CGT allowance (£3,000 each).

Use both of your income tax bands to benefit from lower CGT rates.

This is one of the simplest and most effective ways to reduce your tax liability legally.

7. Consider reinvestment options

If you are a business owner selling a property used for trading purposes, you may qualify for Business Asset Rollover Relief or Business Asset Disposal Relief.

Business Asset Rollover Relief lets you defer paying CGT if you reinvest the proceeds into another qualifying business asset within a set period.

Business Asset Disposal Relief (previously Entrepreneurs’ Relief) allows you to pay CGT at 10 percent instead of 24 percent when selling qualifying business assets, including some commercial properties.

8. Sell through your limited company

If you operate through a limited company, selling investment properties can sometimes be more tax efficient, especially if you plan to reinvest profits into new developments.

However, company ownership has its own tax implications, including Corporation Tax on gains and potential double taxation when withdrawing funds personally. Always seek professional advice before restructuring ownership.

9. Gift to family strategically

Gifting property to family members while you are alive may reduce the size of your estate for future Inheritance Tax purposes. However, it can trigger CGT if the property has increased in value since purchase.

If you gift to your spouse or civil partner, no CGT is due, making this another way to manage tax between you.

10. Keep good records

Accurate records are the foundation of every CGT calculation. Keep copies of:

Purchase and sale contracts.

Solicitor and estate agent invoices.

Receipts for improvement works.

Mortgage statements.

These records will help you calculate your gain precisely and claim all allowable deductions. HMRC can request evidence for up to six years after a sale.

Example scenario

David sells a buy-to-let property for £350,000 that he originally bought for £200,000. He spent £20,000 on improvements and £5,000 on legal and agent fees.

His gain is £350,000 (£200,000 + £20,000 + £5,000) = £125,000.
After applying his £3,000 annual allowance, his taxable gain is £122,000.
As a higher-rate taxpayer, he pays 24 percent CGT, which equals £29,280.

If David were married and shared ownership with his spouse, they could use two allowances and pay tax at lower rates, potentially saving thousands.

Common mistakes to avoid

Forgetting to claim Private Residence Relief or allowable costs.

Misreporting repairs as improvements or vice versa.

Selling before using your spouse’s allowances.

Missing the CGT payment deadline (60 days for residential property).

Conclusion

Capital Gains Tax can significantly impact your profits when selling a property, but with careful planning, you can reduce your bill legally. Claiming available reliefs, deducting all costs, timing your sale wisely, and sharing ownership with your spouse are all effective strategies.

Keeping thorough records and seeking professional tax advice will ensure you maximise your reliefs and stay compliant with HMRC rules. Thoughtful preparation before you sell could save you thousands in tax and help you make the most of your investment.

You may also find our guidance on Do I pay Capital Gains Tax when selling a rental property and How do I plan for Inheritance Tax on property useful when exploring related property tax questions. For a broader overview of property tax reporting and planning topics you can visit our property hub which brings all related guidance together.