An ex-partner and I bought a property in 2000 which we lived in together for four years.
We bought it for £134,500 and when we split up I retained the property by buying her half share in February 2005. This buyout was at a new documented total valuation of £305,000 for the property when I became sole owner.
I retained all financial records of the separation, and we had a solicitor draw up the documents.
I continued living in the property for a further 14 months and then moved house but had to let it to avoid a chain and losing out on a new property. I have successfully rented it ever since.
The property is now worth £450,000 but my question is: what is my capital gain based upon? The original jointly purchased £134,500 or the buyout valuation of £305,000? P.S, via email
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This reader’s property has increased considerably in value, so the way that their gain is calculated could have a significant effect on their tax liability
Harvey Dorset, of This is Money, replies: Capital gains tax is paid when you sell an asset that has increased in value.
Capital gains tax on buy-to-let properties is charged at 18 per cent for basic rate taxpayers, so those with income of £50,270 or less. For higher rate taxpayers, the rate of capital gains is charged at 24 per cent. But you add capital gains to your other income to decide which bracket you are in.
Your property has increased considerably in value, so the way that your gain is calculated could have a significant effect on your tax liability.
As you will see below, your situation is a complex one, and your calculations will need to take lots of variables into consideration.
To explain how you need to do this, This is Money spoke to two financial advisers.
Liviu Ratoi says that as this property has been your main residence, you will need to account for this and apply Principal Private Residence
Liviu Ratoi, independent financial planner at Flying Colours, replies: While you might think it would be as straightforward as you outline, for capital gains purposes the gain on the property isn’t calculated on either of the two valuations.
Instead, HMRC treats ownership as having been acquired in two separate stages, each with its own base cost.
As you acquired 50 per cent of the value of the property in 2000 when the property was valued at £134,500, your base cost for this share is £67,250 plus any costs associated with the purchase.
In 2005 you acquired the remaining 50 per cent from your ex as part of a formal separation. For capital gain purposes this is treated as a new acquisition at the new market value of £305,000. The base cost is therefore £152,500 plus any costs associated with the purchase.
Adding these two base costs together gives an actual acquisition cost of £219,750, plus acquisition costs as per above. On sale, the capital gains will be calculated by deducting the base cost plus any costs associated with the sale from the sale proceeds.
Capital gain (before reliefs): £450,000 − £219,750 = £230,250.
As this property has been your main residence, you will need to account for this and apply principal private residence relief for that the period you lived there along with the last nine months of ownership.
As the property was also subsequently rented, lettings relief will only apply if you shared occupation with tenants, under the post-April 2020 rules.
The above is a general explanation of how HMRC would typically approach a situation like this. A formal capital gains tax calculation would need to take into account exact dates, periods of occupation, allowable costs and current tax rates.
How can you reduce your CGT bill?
Barral says that if unused, you can deduct your £3,000 CGT allowance
Alan Barral, financial planner at Quilter Cheviot, replies: It would be a good idea to look back at your documentation to find out what your stamp duty costs were on the 2005 buy out from your partner and also factor in any costs that you may have incurred in buying/selling or improving the property over time.
Now this is the slightly more complicated part. You need to work out what period of ownership would apply for principle private residence relief.
The calculation for this is broken down by the number of months when it is was your main residence, plus the final nine months of ownership.
You need to work out what period of ownership would apply for principle private residence relief. The calculation for this is broken down by the number of months when it is was your main residence, plus the final nine months of ownership.
In your situation, (using 1 February 2000 as an example of the original purchase date) the property was owned for 314 months. You actually lived in the property for 74 months.
You then add the final nine months of ownership (so long as it was your main residence at some point, which it was). Out of the 314 months you owned the property, 83 months can be considered for Private Residence Relief (PRR)
83 months / 314 months = 0.264
Total gain = £230,250 x 0.264 = £60,786 – this is the amount of private residence relief (PRR) you can deduct from the overall gain before calculating capital gains tax (CGT). When combined with your original blended purchase price, this would equate to £280,536.
Looking at all of the above in total, it looks like this:
£280,536 – Blend purchase price & private residence relief
£450,000 – Market value
£169,464 – Capital gain realised upon sale
It’s important to bear in mind that if you have not used your capital gains tax allowance for the current tax year (£3,000 for 2025/26), then you can also deduct this amount from the realised gain upon sale.
Assuming you have not realised any other gains during the current tax year, this would give a final figure of £166,464 which would be liable to capital gains tax.
Don’t forget to look back at those documents to check whether there are any other allowable expenses or costs that you have incurred that could help you to reduce this further.