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Understanding Capital Gains Tax in the UK
Dec '2025
Before you read this I want to reiterate I am not a Tax accountant. This is a basic outline of the Captial Gains Tax rules to familarise yourself with if you're thinking about retiring abroad, it is one of biggest financial issues you need to consider when wondering what to do with your UK home. Please seek professional tax advice for your own circumstances.
What You Need to Know Before Retiring Abroad Over 60
For many people over 60, their largest asset isn’t their pension — it’s their home.
If you’re planning to:
Sell your UK property before you leave
Rent it out and sell later
Keep it long-term as an investment
Or transfer ownership to children
Then understanding how Capital Gains Tax works is essential.
This Blog is a guide and explains CGT in simple terms, with a clear worked example, and highlights how Private Residence Relief can dramatically reduce — or completely eliminate — your tax bill
What Is Capital Gains Tax?
Capital Gains Tax is a tax on the profit (“gain”) you make when you sell something that has increased in value.
It applies to:
Property that is not your main home
Shares and investments
Business assets
Valuable possessions (over £6,000)
You do not pay CGT on the full sale price. You pay it on the gain, which is: Sale price – Purchase price – Allowable costs
The Basic Property Example
Let's say:
You bought your house in 2000 for £50,000
You sell it in 2025 for £250,000
Step 1: Calculate the Gain
£250,000 – £50,000 = £200,000 gain
That looks like a large taxable amount.
But here’s where things get important.
Private Residence Relief (PRR)
If the property has been your main home, you may qualify for something called: HM Revenue and Customs Private Residence Relief
Private Residence Relief (PRR) means:
If the property has been your only or main residence for the entire period of ownership, you usually pay no Capital Gains Tax.
So in our example:
Bought for £50,000
Sold for £250,000
Gain = £200,000
Lived in it for the full 25 years
Capital Gains Tax owed = £0
Even though the gain is £200,000, PRR covers the whole amount.
For many people retiring abroad, this is extremely good news.
When Does Capital Gains Tax Become an Issue?
CGT typically becomes relevant if:
You move out and rent the property
It becomes a second home
You inherit a property and sell it
You gift property (except to a spouse)
Example: You Move Abroad and Rent It Out
This time:
You lived in the house for 20 years
Then you move abroad and rent it out for 5 years
Then sell it for £250,000
You owned it for 25 years total.
Now things change.
Step-by-Step Calculation
Total Gain
£250,000 – £50,000 = £200,000 gain
Period Qualifying for PRR
You lived in it for 20 years out of 25.
20 ÷ 25 = 80%
So 80% of the gain qualifies for Private Residence Relief.
80% of £200,000 = £160,000 tax-free
Remaining Gain Potentially Taxable
£200,000 – £160,000 = £40,000 taxable gain
Annual CGT Allowance
Each individual has an annual Capital Gains Tax allowance.
(Allowance levels can change — always check the latest rates with HM Revenue and Customs.)
If we assume the allowance is £3,000 (exempt allowance for the tax year 2025/2026)
£40,000 – £3,000 = £37,000 taxable gain
What Rate of CGT Would You Pay?
For residential property:
Basic rate taxpayers: 18%
Higher rate taxpayers: 24%
If you were a higher-rate taxpayer: £37,000 × 24% = £8,880 CGT This is a significant difference from zero.
Important Rule: The Final 9 Months
There’s another helpful rule.
Even if you no longer live in the property, the final 9 months of ownership usually still qualify for Private Residence Relief.
So if you move abroad and sell within 9 months, you may still avoid CGT entirely. This is very important for retirees testing life overseas.
What About Letting Relief?
In the past, there was something called “Letting Relief” which reduced CGT further for landlords.
However, rules changed in 2020. Now, letting relief generally only applies if:
You are living in the property at the same time as the tenant.
For most retirees moving abroad, this will not apply.
What If You Keep the Property Long-Term?
Many people retiring abroad choose to:
Keep the property
Rent it out
Use rental income to supplement their pension
This can work well — but the longer it is rented, the smaller the Private Residence Relief percentage becomes.
Example:
Lived there 15 years
Rented for 10 years
Owned 25 years
15 ÷ 25 = 60% exempt
40% of the gain potentially taxable
If the gain is large, this could become a sizeable tax bill.
What If You Never Lived in It?
If the property was always a rental or investment property:
There is no Private Residence Relief.
Using our £200,000 gain example:
£200,000 – £3,000 allowance = £197,000 taxable
At 24%: £47,280 CGT A very different outcome.
Timing Matters When Retiring Abroad
If you’re over 60 and planning a move abroad, ask yourself:
Should I sell before I leave?
Should I rent it out?
How long might I stay abroad?
What if I return to the UK?
The CGT impact could influence your decision.
I looked into this and took everything on board when I was deciding do I keep my house and rent it out or do I sell it. I decided to rent my UK house out but I am sure I will come back to this calculation in a couple of years time to work out what is then best for me then.
Becoming Non-Resident — Does That Avoid CGT?
This is a common misconception.
Even if you become non-UK resident:
You may still owe UK Capital Gains Tax on UK property.
Since 2015, non-residents must report and pay CGT on UK residential property sales.
So moving abroad does not automatically remove your tax liability.
Don’t Forget Other Costs
Capital Gains calculations can also deduct:
Solicitor fees
Estate agent fees
Stamp Duty paid on purchase
Capital improvements (extensions, new roof, etc.)
Routine maintenance (like repainting) does not count.
Keeping records is extremely important. Luckily I hoarded away all the documentation and receipts from 1991 when I bought my house. But I bet there are many of us just do not keep this information and not realise how important it might be in later life.
Reporting and Payment Deadlines
If you sell a UK residential property and owe CGT:
You must usually report and pay within 60 days of completion.
This applies even if you live abroad.
Failure to report can result in penalties.
Conclusion
Capital Gains Tax can sound complicated, but for many retirees it comes down to three questions:
Was it your main home?
How long did you live in it?
How long was it rented?
Private Residence Relief is extremely valuable — and for many people it means they can sell their home before moving abroad without a tax bill.
But once a property becomes an investment, the rules change.
If you’re considering retiring abroad over 60, don’t overlook this issue. A decision made today could affect your tax bill years later.
If you found this helpful and you’re seriously considering retiring abroad, I go into far more practical detail — including visas, healthcare, renting overseas, banking, and day-to-day life — in my ebook:
Retiring Abroad Over 60
Because with the right planning, a move abroad isn’t just a dream — it can be a financially sensible too.
Thinking about retiring abroad but want everything explained in one place?
My 33-page ebook, Retiring Abroad Over 60 – Everything You Need to Know, brings all the key topics on this site and my instagram page together in one clear, step-by-step guide and goes into much more detail in plain English and is written specifically for people in their 60s and beyond.
It’s priced at £3.99 — about the cost of a coffee, a UK coffee not a Vietnamese one — and is designed to save you time, confusion, and costly mistakes.
