Selling a flat always raises the question of tax, and short lease properties have some specific wrinkles that are worth understanding before you sell. The good news is that many flat owners will not owe any Capital Gains Tax (CGT) at all. But if you are selling a buy-to-let, second home or inherited property, the numbers can be significant - and a short lease adds some unusual considerations to the calculation.
This guide covers the key rules for the 2025/26 tax year. Tax legislation changes regularly, so treat this as a starting point and always take professional advice before making decisions based on tax.
The main question: is this your home?
The most important factor is whether the flat is, or has been, your main residence. This determines whether Private Residence Relief (PRR) applies.
If the flat is your main home and you have lived in it throughout your ownership: You are exempt from CGT under Private Residence Relief. It does not matter how much profit you make. A flat you bought for £200,000 and sell for £500,000 triggers no CGT at all, provided it has been your only or main residence for the entire period you have owned it.
If the flat is not your main home: CGT may apply. This covers buy-to-let properties, second homes, inherited flats you have never lived in, and properties you have moved out of. The calculation gets more involved, and the sections below explain how it works.
How CGT is calculated on a property sale
CGT is charged on the gain - the difference between your acquisition cost (plus allowable expenses) and your sale price (minus selling costs). Here is the step-by-step calculation:
- Start with your sale price
- Deduct your acquisition cost. This is what you paid for the flat, or its probate value if you inherited it
- Deduct allowable costs. These include:
- Stamp Duty Land Tax paid when you bought
- Solicitor fees for buying and selling
- Estate agent fees or auction costs on the sale
- The cost of any capital improvements (a new kitchen, a bathroom refit, structural work - but not routine maintenance, repairs or redecoration)
- The cost of any lease extension you have paid for during ownership. This is an important one for short lease flat owners
- Surveyor and valuation fees related to a lease extension
- Deduct your annual CGT exemption (see below)
- Apply the CGT rate to the remaining gain
Worked example: buy-to-let flat
You bought a flat in Lewisham for £250,000 in 2015. Stamp duty was £2,500. Legal fees for buying were £1,200. During ownership, you paid £45,000 for a lease extension and £1,800 in associated professional fees. You also spent £12,000 on a new kitchen and bathroom.
You sell in 2026 for £320,000. Selling costs (solicitor fees) are £1,500.
- Sale price: £320,000
- Less acquisition cost: £250,000
- Less stamp duty on purchase: £2,500
- Less legal fees (buying and selling): £2,700
- Less lease extension premium: £45,000
- Less lease extension professional fees: £1,800
- Less capital improvements: £12,000
- Gain: £6,000
- Less annual exemption (2025/26): £3,000
- Taxable gain: £3,000
At 18% (basic rate) that is £540 in CGT. At 24% (higher rate) it would be £720. Notice how the lease extension cost is the single biggest deduction - without it, the taxable gain would have been £48,000.
CGT rates for residential property (2025/26)
Residential property has its own CGT rates, which are higher than those for other assets:
- Basic rate taxpayers: 18% on gains that fall within the basic rate band
- Higher and additional rate taxpayers: 24% on gains (or the portion of gains) above the basic rate threshold
Your CGT gain is added on top of your income for the tax year when determining which rate applies. So if your taxable income is close to the higher rate threshold (£50,270 for 2025/26), even a modest gain can push you into the 24% band.
The annual CGT exemption
Each individual has an annual CGT exemption - the amount of gain you can make tax-free each year. For 2025/26, this is £3,000. This is significantly lower than it was a few years ago (it was £12,300 until April 2023), so it shelters far less of your gain than it used to.
If you jointly own the flat with a spouse or partner, you each get your own £3,000 exemption - so a jointly-owned property sale effectively has a £6,000 tax-free allowance.
Private Residence Relief: the details
PRR is straightforward when the flat has been your only home for the entire time you have owned it. But it gets more nuanced in certain situations:
You lived in it, then moved out
If you lived in the flat as your main home and then moved out (perhaps to live with a partner or move to a bigger property), you automatically get PRR for the time you lived there plus the final 9 months of ownership, regardless of whether you were living there during that period. This "final period exemption" was reduced from 18 months to 9 months in April 2020.
You let it out after living there
If the flat was your main home and you then let it out, you may qualify for Lettings Relief. However, since April 2020, this only applies if you were in shared occupation with the tenant - which is rare for a flat. In most cases, Lettings Relief no longer helps.
Inherited properties
If you inherited the flat and have never lived in it, PRR does not apply. Your acquisition cost for CGT purposes is the probate value at the date of death, not the original purchase price. If the flat has risen in value since then, CGT applies to the gain since inheritance. If it has fallen in value (which can happen with short leases as the lease depreciates), you may have an allowable loss you can offset against other gains.
How short leases affect the CGT position
Short leases create some distinctive tax situations that are worth understanding:
The gain may be smaller than expected
Because a short lease depresses the sale price, the gain on the property may be modest - or even non-existent. If you bought the flat 15 years ago with 75 years on the lease, it now has 60 years remaining. The value depreciation from lease shortening may have partially or fully offset any general market appreciation. In some cases, particularly in areas where prices have not grown strongly, the flat may sell for less than you paid for it.
Lease extension costs reduce your gain
If you paid for a lease extension during your ownership, the full cost of the premium is an allowable deduction. So are the associated surveyor and solicitor fees. As the worked example above shows, this can reduce a significant gain to a very modest one. Keep records of all invoices and completion statements relating to the extension.
Wasting asset rules
HMRC treats a lease with 50 years or fewer remaining as a "wasting asset." This can affect the CGT calculation because the lease is treated as depreciating in value over time, and a special formula applies to determine the allowable cost. The practical effect is that HMRC may reduce the acquisition cost you can claim, potentially increasing the taxable gain. If your lease was under 50 years when you acquired it or has dropped below 50 during ownership, speak to a tax adviser about how the wasting asset rules apply to your specific situation.
Reporting and paying CGT on property sales
Since April 2020, if you sell a residential property that is not your main home and there is CGT to pay, you must report and pay it within 60 days of completion. This is done through HMRC's online Capital Gains Tax on UK property service. The 60-day deadline is strict - miss it and you face penalties plus interest.
You still need to report the disposal on your Self Assessment tax return for the year as well.
Selling to us and CGT
The CGT rules apply in the same way whether you sell through an agent, at auction, or to a cash buyer like us. The sale price may be different (a cash sale is typically below full open-market value), which may mean a smaller gain and less CGT. But the rules and reliefs are identical.
If you are concerned about the tax position, we always recommend speaking to a qualified tax adviser or accountant before committing to any sale. We are happy to put you in touch with professionals who understand the leasehold market if you need a recommendation.
Important disclaimer
This guide is for general information only. Tax rules change, and individual circumstances vary considerably. Nothing in this guide constitutes tax advice. For advice specific to your situation, speak to a qualified tax adviser, accountant, or contact HMRC directly. HMRC's official guidance on Capital Gains Tax is a useful starting point, as is their guidance on selling your home.
If you want to understand what your flat is worth today, regardless of the tax position, request a free valuation or call us on 020 7183 3022.