Capital Gains Tax (CGT) on Property: Exemptions 2026

Solving accommodation by buying rather than renting can be a strong sterling-denominated investment; but its financial success is measured not only by the buy-sell difference, but by how professionally the tax is managed. Capital Gains Tax (CGT), in particular, can hand a large share of your profit to HMRC without planning. Below we explain CGT, the exemptions, and how ownership structure affects the tax.

How Do You Get a CGT Exemption?

The core route to exemption from CGT on a property sale is Private Residence Relief (PRR). If the property is the owner's only or main residence, the gain on sale can usually be fully exempt.

In our advisory work, many families assume that buying in their own name and letting the child live there rent-free brings automatic relief. But the exemption depends on whose main home the property is. Ownership structure can change the tax bill by thousands of pounds, so the sale scenario should be planned before buying.

What Is Capital Gains Tax? Rates and Reporting

CGT is the tax on the gain between purchase and sale price when you dispose of an asset. For residential property in the UK, the rate is, as of 2026, 18% (basic rate) or 24% (higher/additional rate), depending on your income.

Tax is charged only on the gain, and each individual has an annual £3,000 allowance, a figure cut sharply in recent years. On a UK residential sale, the gain must be reported to HMRC and the tax paid within 60 days.

Optivest Note: If you plan to sell when your child graduates and returns home, or moves to another area, CGT can be your largest cost line. So we put the exit (sale) scenario on the table at the purchase stage.

Private Residence Relief (PRR): The Key to a Tax-Free Sale

If a property is the owner's main residence, the gain on sale is usually fully exempt. For families buying for a child, this can work in two ways.

First, buying in the child's name: if the child is over 18 and the property is registered as their only home, they can claim PRR in full on a post-graduation sale. Second, certain trust structures: if the beneficiary (the child) lives in the property as their main residence, PRR may be preserved under some trust arrangements; but this is complex and needs expert advice.

An example: a flat bought in London for £1 million and sold four years later for £1.3 million produces a £300,000 gain, generating roughly £72,000 of tax at 24% (before allowance and costs). If the property is the child's main home, PRR can usually make this gain fully exempt.

Tax disclaimer: This article is general information; consult a registered tax adviser on your tax position. PRR and trust structures depend on personal circumstances.

CGT on Property Held in a Parent's Name or by Non-Residents

Many investors prefer their own name on the title for control and security. In that case the property is usually treated as a second home, and PRR does not apply.

If you live abroad, the London home is not your main residence; on sale, even if your child lived there, you pay CGT on the gain at 18% or 24% for residential property. Non-residents have been within UK CGT scope on residential property since April 2015; for property acquired before then, the gain can often be calculated from the April 2015 value (rebasing). A non-resident seller must also report the sale to HMRC within 60 days even if no tax is due. If you personally lived there for part of the ownership, you may get a proportional relief for that period only.

Optivest Note: We design the ownership model around the family's risk appetite and long-term plan. The wish to retain control and tax efficiency often conflict; we recommend settling this balance with your tax adviser.

Costs Deductible From the Taxable Gain

When CGT is calculated, not only the purchase price but documented costs that increase the property's value can be deducted from the gain, markedly reducing the net tax.

What families most often neglect is keeping invoices and records of these costs; HMRC accepts no expense that cannot be proven. Organised archiving is the most practical way to lawfully reduce the taxable gain on sale day.

Gifting, IHT and Lettings Relief

If the property is already in your name and you consider transferring it to your child, two taxes arise at once. For CGT, "gifting" the property to your child is treated as a sale at that day's market value; CGT can arise on the gain. For Inheritance Tax (IHT), the transfer is a potentially exempt transfer (PET) under the "seven-year rule": if you survive seven years after the transfer, it becomes IHT-exempt.

A key trap is "gift with reservation of benefit": if you gift the property but continue to benefit from it (for example living there rent-free or taking the rental income), the seven-year clock does not start and the property can still be treated as yours for IHT. A separate point is Lettings Relief: this relief is now restricted to the narrow case where the owner shares the home with the tenant; it does not apply to ordinary letting.

Legal/tax disclaimer: CGT, IHT and trust planning are high-risk, personal areas. This article is not legal or tax advice; consult a registered tax adviser and a licensed solicitor on your transactions.

Frequently Asked Questions

What is the CGT rate on residential property in the UK?

As of 2026, CGT on residential property is 18% (basic rate) or 24% (higher/additional rate), depending on your income. Each individual has an annual £3,000 allowance, and the gain must be reported within 60 days of sale.

Will I pay tax when selling a home bought in my child's name?

If the child is over 18 and the property is their only/main home, Private Residence Relief can usually make the gain fully exempt. If the property is not the child's main residence, the relief does not apply.

I live abroad; do I pay CGT when I sell UK property?

Yes. Non-residents have been within UK CGT scope on residential property since April 2015 and pay 18% or 24% for residential property. The sale must be reported to HMRC within 60 days even if no tax is due.

Which costs can I deduct in the CGT calculation?

SDLT, legal and agent fees on purchase; capital improvements that permanently add value; and selling costs (advertising, legal fees) can be deducted from the gain. Routine maintenance/repainting cannot, and all costs must be evidenced.

Does gifting the property to my child create tax?

For CGT, a gift is treated as a sale at that day's market value and can trigger tax on the gain. For IHT, the seven-year rule applies; but if you keep benefiting from it ("gift with reservation"), the seven-year clock does not start.

How large is the annual allowance (AEA)?

For 2025/26 and 2026/27, the annual exempt amount is £3,000 per person. Gains above this are taxed at the applicable rate.

In Summary, and How to Reach Us

The tax outcome of a London student-home investment depends largely on whose name holds it and whose main home it is; a well-structured arrangement can make the gain lawfully exempt through PRR, while the wrong one can generate thousands in CGT.

Whether you are at the research stage or planning a sale, the Optivest team helps you plan the ownership structure and exit scenario alongside your tax adviser. Contact us or reach us on WhatsApp. See our taxes and costs guide, our legal support service for structure, and our end-to-end investment consultancy service.