Do You Pay Tax When Selling Your House?

Tax implications when you sell a house

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Tax can be a confusing subject, especially regarding selling your house. However, it shouldn’t be, and we’re here to explain tax when selling a house simply, aiding you in your house-selling journey.  

Homes sell for different reasons, such as buying a new property, and as a costly process, there are many things to consider. From moving costs and estate agent fees to solicitor fees and tax, it’s crucial to plan your budget when selling your home. 

Homeowners should be prepared for the various taxes on selling a house, including Capital Gains Tax which will depend on the duration of ownership and whether the property was their main residence.

For those prioritising speed, convenience and reliability in their property sale, The Property Buying Company offers a service unmatched by our competitors, and can meet your needs effortlessly. 

On this page, we will be taking a look at what taxes you may have to pay when it comes to selling your home and in which circumstances you would pay them. Read on for all things relating to taxes when selling a house.

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Do you pay tax when you sell your house in the UK?

Generally speaking, you don’t pay tax when you sell your home as ‘Capital Gains Tax’ doesn’t apply to your ‘primary residence’ (the house you live in). There are many conditions for Private Residence Relief, including:

  • You only own one home that you live in 

  • You haven’t let out part of it (not including a lodger) 

  • You haven’t used part of your home for business premises, such as a B&B 

  • The grounds are less than 5,000 square metres in total 

Essentially, the primary way not to pay any tax is if your home is exclusively yours and you haven’t used it to create another source of income, such as a B&B. 

If you have more than one home or property, the tax is a different scenario, although if you live in the home and choose to sell it, you shouldn’t pay Capital Gains Tax. It’s that simple. 

One form of tax to consider is stamp duty, common in property sales. Even though it’s not tax paid when you sell as the buyer pays stamp duty, it’s important to budget when selling a house and buying a new one. 

Stamp duty only applies if you’re selling a home to buy another one, not only if you’re selling. It’s based on the value of a home and can amount to thousands (depending on the property type). Stamp duty is at a higher rate for second-time buyers compared to first. 

This means planning a larger budget to cover stamp duty when buying the next home.

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What tax do you pay when selling a house?

As mentioned above there are three types of taxes that you may have an interest in if you're looking to sell your property. When selling your property there are a few taxes that you could potentially come across. 

We have detailed these below:

  • Capital Gains Tax (CGT)

  • Inheritance Tax (IHT)

  • Income Tax

  • Stamp Duty Land Tax (SDLT)

Capital Gains Tax (CGT)

Homeowners who have more than one property, profit from their assets, or sell an asset that has increased value since they bought it may have to pay Capital Gains Tax when selling a house. For example, buy-to-let properties, business premises, land, and inherited property may have to pay this tax. 

This is a tax on the profit made from the property sale. The tax applies if, for example, the property value when the owner dies is £100,000 but when you come to sell it you get £150,000, you will be taxed on that £50,000 profit you have made. 

On this additional gain, basic rate taxpayers will pay 18% but higher or additional rate taxpayers have to pay 28%. It's worth keeping in mind as well the CGT will be included in working out your tax status for the year and could push you into a higher tax bracket.

Another thing to consider is that everyone gets an annual CGT tax-free allowance of £3 (In 2024/25).

Capital Gains Tax for selling your home  

Capital Gains Tax may apply to you when you’re selling your home if you used it for other means or gained financially in any way. For example, if you sublet part of the home, you used part of your home for business premises, or you have another home that could be considered your primary residence. 

HMRC explains the complete terms for Capital Gains Tax when selling your home, and for any advice regarding the details, speak to a house sale tax adviser. 

Capital Gains Tax for selling a home with a business premise  

When it comes to a home you’re selling that you use for business, it may reduce or delay the amount of Capital Gains Tax you pay. For example, if you’re a property developer, you won’t pay Capital Gains Tax when selling the home. 

Instead, other taxes are required, such as Income Tax (if you’re a sole trader or partner) or corporation tax (if you’re a limited company).  

Capital Gains Tax for selling inherited properties 

Inherited properties can be in two different forms. The first is gifting a property to your spouse, civil partner or a charity, and you pay no Capital Gains Tax.  

Inheriting a property can be a curse & a blessing due to this tax when selling. If a property has increased in value from the date the owner died to the time of the sale, then you may get taxed for this as it will be viewed as a taxable gain.

On the other hand, if you inherit a property (and the Inheritance Tax has been paid), you will pay Capital Gains Tax on any profit you make when you sell the property.

Capital gains for selling a property overseas 

If you’re selling your property overseas, UK residents pay Capital Gains Tax. How much tax you pay and claim relief alters depending on your circumstances. For example, if your permanent home is abroad and you’ve paid tax in that country, you may be taxed twice and can claim relief. 

Inheritance Tax (IHT)

If the estate that you've inherited exceeds the market value of £325,000 then you will have to pay inheritance tax which is due six months after the person's death and if not paid in this time you will be charged interest. 

Inheritance Tax is currently 40% for properties valued at over £325,000, and it’s due six months after the person’s death. How much you pay is measured from the date you acquired the property. 

If the house is valued at £400,000 you will be charged 40% of £75,000, so £30,000 in Inheritance Tax when selling your house.

Income Tax

If you decide to rent out your property then you will have to pay tax on any profit you've made, which is something to consider if you’re deciding whether to sell or rent.

Stamp Duty

Stamp duty is a tax that must be paid when you purchase a property or land over a certain price in England or Northern Ireland. You will only need to pay this tax if you are buying a property at the same time as you are selling one as it is only applicable to buyers. 

Stamp duty is payable when you buy a freehold property, a new or existing leasehold, property through a shared ownership scheme, such as buy-to-let, or if a property is transferred to you in exchange for payment.

How much tax is paid depends on the amount the property is worth. Previously, stamp duty was paid on the first £125,000 of any property purchase. However recent changes mean that now the first £250,000 of a property is exempt from stamp duty. 

Buyers must then pay 5% of the value of the home from £250,001 to £925,000, and 10% on properties between £925,001 and £1.5 million and then any property worth more than this will be taxed at 12%.

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What are the tax implications on selling a house?

When selling a property, several tax implications can arise, influenced by factors such as how you've used the property and any profit made from the sale. 

Capital Gains Tax is the primary tax concern for many sellers. CGT is applicable on the profit (the 'gain') you realise from selling your property, except for your main home, which is usually covered by Private Residence Relief (PRR). 

The need to pay CGT can arise in situations such as selling a rental property, a second home, or a property you've inherited.

If you've rented out your property, any income received is subject to Income Tax. This includes short-term rentals through platforms like Airbnb. It's important to ensure that all rental income has been appropriately declared to HM Revenue and Customs (HMRC).

While Inheritance Tax is not directly related to the act of selling, if you've inherited a property, IHT may have been a consideration. The sale of an inherited property might also trigger CGT, depending on the value of the property at the time of inheritance versus its sale price.

What are the tax implications for selling a property I previously lived in?

If you're selling a property that has been your main residence, you may qualify for PRR, which can significantly reduce or even eliminate CGT on the sale. 

The relief covers the period the property was your primary residence, plus an additional final period exemption (currently the last 9 months of ownership), regardless of your occupancy status during that time.

Letting Relief: This relief might apply if you've let out a property that at one point was your main residence. Letting Relief can reduce your CGT liability, although recent changes have limited its applicability.

Here are the key tax implications when selling a house?

Selling a property and navigating the associated taxes—whether it's CGT, taxes on house sale, or other considerations—requires careful planning. 

By understanding the potential tax when selling a house and the available reliefs, you can make informed decisions that optimise your financial outcome.

Tax ImplicationDetails
Private Residence ReliefYou may be eligible for full relief from CGT for the period the property was your main residence, plus the final 9 months of ownership, even if you weren't living there during this period.
Period of AbsenceYou might also qualify for relief for certain other periods of absence, for reasons such as working abroad or elsewhere in the UK, provided certain conditions are met.
Letting ReliefIf you let out part or all of the property, you may be eligible for Letting Relief, which can reduce your CGT liability further, subject to specific conditions and limits.
Capital Gains TaxIf selling the property results in a capital gain, and the property was not your residence for the entire period of ownership, you might have to pay CGT on the portion of the gain not covered by reliefs.
Annual Exempt AmountYou can deduct your Annual Exempt Amount (£3,000 for the 2024/25 tax year) from the taxable gain.
Calculation of GainThe gain is calculated by subtracting the purchase price, costs of acquisition, and improvement costs from the selling price, minus any reliefs you're eligible for.
Reporting and PaymentIf you owe CGT, you must report and pay it within 60 days of the sale (as of the 2024/25 tax year) through the UK's HMRC Capital Gains Tax on UK property account.
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Do I pay tax if I sell my house and don’t buy another?

In the UK, whether you pay tax when selling a house depends on various factors, including whether the property is your main home (referred to as your Principal Private Residence or PPR). Generally, if the house was your main residence for the entire period you owned it, you might not have to pay Capital Gains Tax (CGT) due to Private Residence Relief.

However, if the property was not your main residence for the entire period you owned it, or if it was used for business purposes, or if you let part of it out, you might have to pay CGT on part of the gain when you sell it. The amount of tax you pay can also be affected by other factors, such as the size of the property and whether you have used it for any purpose other than as your main home.

If you sell a property that is not your main home, such as a second home or an investment property, you are likely to be liable for CGT on any gains made from the sale. The rate of CGT you'll pay depends on your total taxable income and the size of the gain. There are annual tax-free allowances (the Annual Exempt Amount) that can reduce the amount of gain subject to CGT.

Not buying another house after selling one does not directly affect your CGT liability. Your tax liability is determined by the gain made on the sale of the property and your use of the property during the ownership period, not by what you do with the proceeds.

Is selling a house considered income in the UK?

In the UK, selling a house can be considered as income, but whether it's taxed as such depends on specific circumstances. Generally, the sale of your main home (primary residence) is not subject to Capital Gains Tax (CGT) due to Private Residence Relief.

However, if you sell a property that is not your main home, such as a second home or an investment property, the profit you make on the sale could be subject to CGT.

Do you have to pay taxes on money from selling your house?

If the property that you are selling is your main residence then you will normally be exempt from tax.

It is only when you rent out your home, have a second home, or if you use part of your home for a business, that things become a little trickier. This is why it is always a good idea in order to make sure that you do not owe any tax.

The taxes when selling your house can significantly reduce your net proceeds and can cause serious penalties if they are not paid.

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What does paying tax when selling a home look like?

As you are probably gathering from this article, when you sell a home there are various taxes you need to pay and take into consideration. This guide delves into the financial landscape of selling a home, using Grant's experience as a practical example. 

Grant is in the process of selling his terraced house in the Wirral, valued at £259,000, with the aim of purchasing and refurbishing another property for £225,000 to become his next family home.

Given his property's recent use for short-term Airbnb rentals, Grant's situation presents a unique set of financial considerations.

What fees or taxes do you need to pay before selling a house?

Before Grant sells his house on the market, he needs to instruct both solicitors and estate agents in order to get the ball rolling. 

Estate Agent Fees: 

Engaging an estate agent, Grant faces a fee of 1.5% of the sale price plus VAT (20%), totaling £3,888 (£3,240 + £648 VAT).

Solicitor Fees for Conveyancing: 

The estate agent's services do not extend to cover solicitor fees required for the legalities of selling and buying. For the sale, Grant should anticipate costs between £1,000 and £1,500 plus VAT. Averaging this, the expected expense is £1,500 (£1,250 + VAT).

When do you need to pay taxes when selling your house?

Capital Gains Tax (CGT):

Renting out his property brings CGT into consideration. Grant might be liable for CGT on any profit from the sale, mitigated by Private Residence Relief (PRR) for the period the property was his main residence, plus the last 9 months of ownership.

The tax liability hinges on the realised gain, subtracting any eligible reliefs and the annual exempt amount (£3,000 for 2024/25). Any CGT due must be reported and paid to HMRC within 60 days post-sale.

Income Tax on Rental Income:

The income Grant earned from Airbnb rentals is subject to Income Tax, necessitating declaration through Self-Assessment.

When do you need to pay taxes when buying onward property?

Stamp Duty Land Tax (SDLT):

Grant's new home purchase in the Wirral for £225,000 incurs SDLT. With the current threshold, Grant’s home is not liable for Stamp Duty as it is below the £250,000 threshold. If Grant had another property, he would face a 3% Stamp Duty Tax. 

Solicitor Fees for Purchase:

The conveyancing for Grant's purchase is expected to be slightly higher than the sale, estimated at £1,500 + VAT, totaling approximately £1,800.

Additional Fee Considerations

Refurbishment and Moving Costs: Grant's refurbishment plans and the logistics of moving will introduce variable costs, dependent on the scope of work and the moving distance.

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Is it possible to reduce these taxes when selling your house?

In some circumstances there are situations in which you may not have to pay some of these taxes so it is worthwhile knowing all of your options, and you may want to seek professional advice around this.

Reduce Capital Gains Tax (CGT)

Why it is important to note it is illegal to actively engage in tax evasion, or tax avoidance, there are several legal loopholes home sellers and investors can utilise in order to lower their Capital Gains Tax liability.

If the property is your main residential property and you’ve lived there most of the time or have lived there within the last three years, you can claim Private Residence Relief on profit made from its sale. 

This means you won’t pay Capital Gains Tax. You must not have ever rented out any part of the house (having a single lodger does not count towards this) or used any of it solely to conduct business. 

You must also not have bought the property simply to make a profit. Otherwise, you will be subject to Capital Gains Tax. Similarly - married couples are only allowed to count one property as a main home at any one time.

You will not need to pay Capital Gains Tax on a home sale if you meet all of the following:

  • You have one property that you have lived in as your main home the whole time

  • The grounds are less than 5000 square metres

  • You did not buy the property in order to make a gain

  • You have not let parts of it

  • You have not used parts of it for business only

There are a few other situations where you don’t usually have to pay CGT:

  • If the property was a gift from a husband, wife, civil partner or a charity

  • If the purpose of your business is to buy and sell property e.g., you’re a property developer. Instead you will pay Income tax (if you’re a sole trader or partner) and Corporation tax (if you’re a limited company)

  • If a dependent relative lived in the property

Selling a property that is a rental property, holiday let, second home, investment property, land or inherited property means you can’t claim Private Residence Relief and may need to pay CGT.

Reduce Inheritance Tax

When it comes to avoiding inheritance tax on the sale of your home, it can be a little trickier. 

If you've been left with the property and are due to pay it there isn't much you can do, however, you can always pre-plan for an inheritance situation for your loved ones so that they may avoid the tax. You can do this by:

  • Giving gifts

  • Leaving money to charity

  • Leaving the estate to your spouse

  • Using property allowances

  • Deed of variation

If you want all the ins & outs then Which.co.uk has a great guide on how you can potentially lower the amount of inheritance tax that you pay.

Reduce Income Tax

Unfortunately, if you are renting a property out this is seen as earning and falls under income tax, which you will be required to pay on your house sale.

Reduce Stamp Duty

Avoiding stamp duty is easier said than done. The first £250,000 are exempt from the tax which helps to reduce the amount you will pay. However, the only sure-fire way to avoid the tax or to at least reduce it is to be a first-time buyer buying a property under £425,000.

How could you reduce your taxes when selling your home?

Considering alternative selling strategies, such as engaging with a cash house buying service (like ourselves), can offer significant financial benefits. 

Let’s revisit Grant’s scenario to show how this approach might impact his financial obligations during the property sale and purchase process.

By switching to a company like ours, Grant circumvents the conventional estate agent route, effectively eliminating the typical 1.5% + VAT commission on his £259,000 property sale, which would otherwise total approximately £3,888. Our service is completely free, and we will never charge you hidden fees for necessary parts of the house selling process.

Furthermore, as a reputable house buying company, we cover the seller's legal fees as part of our service proposition, potentially saving Grant an additional £1,500 in solicitor fees required for the conveyancing process.

A key advantage of our service  is the acceleration of the sale process. For Grant, a swift transaction could mean significant savings on protracted financial commitments, such as council tax and utility bills, particularly since he is not residing in the property during the sale period. We can buy houses for cash in as little as seven days, although most people decide on a two to three week period. 

Although the rapid sale facilitated by a service like ours doesn't directly reduce Grant’s Capital Gains Tax (CGT) obligations, it enables more efficient financial planning. 

This accelerated process is important for timely addressing subsequent expenses, including Stamp Duty Land Tax (SDLT) for his onward purchase, and managing the transition with greater financial predictability.

Moreover, by avoiding the delays common in traditional property transactions, Grant could also conserve funds on ongoing expenses associated with the property, such as insurance and maintenance, thereby optimising his financial outcome during the sale.

In essence, choosing our service not only streamlines the selling process for Grant but also presents a strategic opportunity to minimise his overall tax and fee liabilities, enhancing his financial efficiency and readiness for his next home investment.

If you want to be more like Grant, then sell your house with us for free!

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Taxes on selling a house: FAQs

When putting your home up for sale, there may be a few questions that you have, if they are not answered in this article, or below, then please get in touch with one of our team!

Here are some of our most frequently asked tax on selling a house questions:

How much Capital Gains Tax do I pay when selling my home?  

For those eligible to pay Capital Gains Tax when selling your home, your income alters the amount you pay. Basic rate taxpayers pay 18% on gains, whilst higher rate taxpayers pay 28%. Every taxpayer has a Capital Gains Tax allowance annually of £3,000, and this can help towards specified costs. 

You can also reduce your costs of the amount of Capital Gains Tax you pay based on your circumstances at the time of the sale. 

Can you reduce how much tax you pay when selling my home? 

For eligible candidates to pay Capital Gains Tax, you can reduce the overall amount by sharing ownership with your spouse. As each taxpayer has an annual allowance, double yours through shared ownership and deduct the tax costs overall. 

There’s also the deduction of relevant costs when working out your Capital Gains Tax bill, including estate agent fees, conveyancing fees and even stamp duty. Other expenses, such as investments in the property (to add value), can reduce tax costs. Although it’s worth noting, maintenance costs aren’t applicable. 

When timing your sale, consider how much of your Capital Gains Tax allowance is available for the year. If you’ve nearly used it all, try and time the sale for the next tax year. 

Another option is to nominate the property you’re selling as your primary residence if you own other homes elsewhere. You can reduce your Capital Gains Tax bill by stating this home is your primary residence in advance. A tax adviser can explain the best process for doing this on your home-selling journey. 

With Inheritance Tax, it’s trickier to reduce the amount, and the best way to do so is through estate planning and speaking with a financial adviser. 

How long do you have to keep a property to avoid Capital Gains Tax UK?

To avoid Capital Gains Tax (CGT) on the sale of your property, it is essential that you have resided in the property as your primary and sole residence for the entire duration of your ownership. In such cases, CGT does not apply to the sale of your residential property.

What other tax do I need to pay when selling my home?  

When selling your UK property, you need to consider other types of tax to pay. For example, stamp duty if you want to purchase another home when selling your property. Council tax is a consideration, and Income Tax if you have any business premise or financial gain from your home. 

Are you considering selling your home and moving somewhere new? As leading cash buyers with an excellent rating, we buy properties for cash, offering a fast property sale experience and handling everything from start to completion, including solicitor costs. 

With a team of experts, we can advise you how much your property is worth and take the hassle out of selling your property for cash. 

We offer a flexible approach to choosing a completion date with a minimum of seven days with no fees. Contact our team today and see how we can help you sell your property quickly. 

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