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Do I Pay Capital Gains Tax on a Renovated London Property?

CGT on a renovated London property depends on use. If main residence (lived in throughout ownership): generally no CGT under Private Residence Relief. If buy-to-let or second home: CGT at 18% (basic rate band) or 24% (higher rate) on gain above £3,000 annual exemption (2025/26). Renovation costs are allowable expenses that reduce the gain. Always confirm with a tax adviser.

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01

Private Residence Relief

Main home throughout ownership: full PRR — no CGT on sale. Partial: PRR proportional to period as main residence + final 9 months always covered. Example: bought 2020 for £500k, lived in throughout, sold 2026 for £750k — £250k gain, full PRR, no CGT. Restrictions: PRR applies to dwelling house and 'grounds' (curtilage) up to 0.5 hectare; larger grounds may have partial CGT exposure. PRR doesn't apply to part of home let to lodgers/tenants for extended period — lettings relief (separate) may help. Must elect main residence within 2 years of acquiring multiple residences.

02

CGT rates 2025/26

Annual exemption £3,000 per individual (£6,000 jointly-owned between spouses). Gains above exemption: residential property at 18% (basic rate band) and 24% (higher rate band). Spouse can use their exemption + their basic rate band — joint ownership saves material CGT. Higher rate band trigger: £37,701+ total taxable income. 60-day reporting and payment to HMRC after residential disposal; missed deadlines incur penalties.

03

Allowable expenses

Deduct from gain before CGT: purchase price; SDLT; legal fees on purchase and sale; estate agent fees on sale; survey fees on purchase. Renovation: any 'capital expenditure' (improvements adding value); not 'revenue expenditure' (maintenance, decoration, repair). Capital: extension, new bathroom suite, structural alterations, new kitchen, loft conversion, new windows, full rewire, full heating, garden landscape build. Revenue (not allowable against CGT but may offset rental income): repainting, single-window repair, tap replacement, ongoing maintenance. Keep invoices and contracts 6 years post-sale.

04

BTL/second home example

Bought BTL Hackney 2018 for £450k (+£18k SDLT +£4.5k legal = £472.5k acquisition). Owned 8 years, never main home. Renovation 2020 £75k (capital — kitchen + bathrooms + rewire). Sold 2026 for £680k (-£8.5k agent -£2.5k legal = £669k net). Gain: £669k - £472.5k - £75k = £121.5k. Less exemption £3k: taxable £118.5k. CGT at 24%: £28,440. Net post-tax: £640,560. If renovation not documented: gain becomes £196.5k; CGT £46,440 — £18k extra paid.

More questions

Related questions answered.

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Are renovation costs always deductible?

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Capital improvements (extensions, kitchen, bathrooms, structural, services) deductible. Repair/maintenance not deductible against CGT but may offset rental income. Distinction debated; HMRC guide BIM35400 covers detail. Keep receipts and contractor invoices.

Can I claim PRR if I rented out the property?

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Partial PRR if you lived as main home for some of ownership. Final 9 months always covered. Letting period reduces relief proportionally. Letting Relief reformed 2020: now limited to periods where owner lived with tenants — rarely applicable to typical BTL.

Does property gifting trigger CGT?

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Yes — gift treated as disposal at market value for CGT (IHT separate). Spouse gifting exempt; other family members create CGT liability. Gift to children: SDLT (transfer at value) + CGT for transferor + IHT 7-year clock for transferee. Take tax advice.

How do I report CGT?

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60-day reporting via HMRC's Capital Gains Tax on UK Property Service (online). Payment due at same 60-day point. Include sale price, acquisition cost, allowable improvements, allowable selling costs. Annual self-assessment also reports — credit given for 60-day payment.

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