Anyone selling a property should know that the old 36-month rule has been replaced by a 9-month exemption. This rule was in place to determine the amount of Capital Gains Tax that must be paid at the point of sale or transaction for a house or property within the UK. The 36-month exemption was first reduced to 18 months in 2014 and then to 9 months in April 2020. Today, homeowners can only claim CGT exemption for the final 9 months of ownership before selling.
Read about the new 9-month rule here.
But what was this rule, how was it implemented, and what do you need to know if you are buying and selling the same property within a 3-year window?
Our RICS-Accredited team here at Crest Surveyors are here to help you dispel any myths around the 36-Month Rule and its implications for Capital Gains Tax.
The 36-Month Rule for Capital Gains Tax was a UK law that previously determined tax liability on property sales. It allowed sellers to claim CGT exemption for the final 36 months of ownership, even if they had moved out. However, this was reduced to 18 months in 2014 and further to 9 months in 2020, which remains the rule today.
This general law is in place as it prevents short-term transaction benefits concerning taxation. The 36-Month Rule was therefore in place to ensure that taxation is fair for property sales, within a timeframe of 3 years.
Although the 36-Month Rule is still discussed, the current law only provides a 9-month exemption period for CGT.
Learn more about the updated 9-Month Rule here.
The 36-Month Rule for Capital Gains Tax
The 36-Month Rule for Capital Gains Tax was used to ensure fair taxation across properties sold or transferred within 3 years. Since 2014, the Government has made amendments to this time period, however, the term ‘36-Month Rule’ is still very much used in common parlance. As of January 2025, tax exemption from Capital Gains Tax only applies to a 9-month period.
But first, let’s clarify a few key terms here. For instance, what is Capital Gains Tax at all?
What is Capital Gains Tax?
Capital Gains Tax is money paid towards the government on the financial gains on capital, in this case, property. So, if you have purchased a property for £100,000, which is now worth £110,000 at the time of sale (or transfer, exchange, or disposal), your capital has gained a value of £10,000. Capital Gains Tax, in this sense, is a tax paid on the difference in the value of your property when you bought it, over the amount that you sold it for.
CGT is a tax paid on this gain in capital as a set percentage as stipulated by the government. This percentage is based on what capital you are paying the CGT on (in this case property), and the tax status of the individual paying. This is based on income and a number of other factors. If you earn more, you may be more liable to pay a higher percentage of tax on the amount gained across your assets.
The variables that are in play include:
- Main Residence Exemption – If the property was your main home, CGT may not apply.
- Income Tax Band – Basic rate taxpayers (income up to £50,270) pay 18% on property gains, while higher/additional rate taxpayers (income above £50,270) pay 24%.
- Annual Exemption Allowance – Each person has a tax-free CGT allowance of £6,000 (2023/24).
- Joint Ownership – Couples who jointly own a property can combine allowances to reduce taxable gains.
- Private Residence Relief (PPR Relief) – The final 9 months of ownership are CGT-exempt for most homeowners. However, if the owner moved into a care home and did not rent out the property, they may still qualify for an extended 36-month exemption. This rule doesn’t apply for regular sellers, however.
- Duration of Ownership – If you owned the property for a long period, only the portion of time it was not your main home is taxable.
- Property Value & Cost Basis – You can deduct purchase price, legal fees, stamp duty, and capital improvements when calculating your gain.
- Letting Relief – If you rented out your former main home, you may qualify for up to £40,000 in Letting Relief to reduce CGT.
- Spouse or Civil Partner Transfers – Transfers between spouses/civil partners are tax-free, allowing you to split the gain for tax efficiency.
Read About the New 9-Month Rule
However, a break on this tax is applicable when you sell a property which was your only residence. This is known as Principal Private Residence Relief or PPR Relief. It is also worth noting that each individual has a £6000 tax-free amount, which doesn’t incur a tax.
You may only be liable for CGT when selling or disposing of a second home or buy-to-let property. As mentioned, if you are selling or otherwise disposing of your only property, you may not be liable at all for CGT and, therefore, exempt from the new 9-Month Rule altogether.
So, the amount of CGT you might pay is dependent on a few things, which we will explain further.
View our Capital Gains Tax Services.
Was The 36-Month Rule A Tax-Free Window for Sellers?
The 36-Month Rule was an extension of Principal Private Residence (PPR) Relief, which is designed to reduce or eliminate CGT liability for homeowners. This rule did allow sellers to claim full tax exemption for the last 36 months (3 years) of ownership, even if they did not live in the property during this period.
As mentioned, this period has since been reduced to a 9-month exemption period.
How Did the 36-Month Rule Work?
If the property was your main residence at any point during your ownership, then the last 36 months of ownership are automatically exempt from CGT.
This exemption applies even if you moved out before selling the property. If you rented out the property after moving out, you may still qualify for partial relief.
Who Benefits from the 36-Month Rule?
Before 2020, the 36-Month Rule helped homeowners who were selling their only home by allowing them to claim tax exemption for up to three years after moving out. However, since April 2020, this period has been reduced to just 9 months.
Read more about how the 9-Month Rule affects sellers today.
This rule was particularly useful for:
- Homeowners who move before selling: If you buy a new home but take the time to sell your previous one, you could benefit from CGT relief for three years.
- Landlords and second-home owners: If you previously lived in a rental property but later let it out, you could still claim part of the exemption.
- People moving into care homes: If you had to move into long-term care, the 36-month exemption would still apply, helping to reduce CGT liability.
How Do You Value a House for Capital Gains Tax?
To calculate your taxable gain, you must determine:
- Purchase Price (Original Value): The amount you originally paid for the property.
- Sale Price (Disposal Value): The amount you sell the property for.
- Market Value (If Required): Used when selling to a relative, gifting the property, or if the property was inherited.
Deductible Costs: Legal fees, stamp duty, and improvements (but not for maintenance).
How Much Is Capital Gains Tax on a Second Property?
As mentioned, any Capital Gains Tax is payable for second properties, rather than primary residences or dwellings. Therefore, the tax rate applicable to second homes is set at 24% for higher-rate taxpayers and 18% for basic-rate taxpayers (as of 6th April 2024).
How Long Do You Have To Keep a Property To Avoid Capital Gains Tax in the UK?
You can only avoid Capital Gains Tax if the property that you are selling is your only home. This is known as the Private Residence Relief (PRR). This rule prevents individuals who own just one property from paying tax when selling or disposing of their home.
Your Partner with Understanding Capital Gains Tax
Here at Crest Chartered Surveyors, we understand that getting your Capital Gains Tax right can mean the difference of thousands of pounds in your pocket. Our expert team of RICS-accredited Surveyors can help you with the sale of your property. Located in Holborn, London, we work with many homeowners in the region, including the South East and the Home Counties, to help them progress with the sale or purchase of their property.
Working with our qualified team will allow you to understand your and your property’s tax status and the allowances to which you may be entitled.
We understand that selling your property can be confusing, so allow us to provide some clarity. Our team can help you with your Capital Gains Tax by providing you with a detailed assessment of the value of your property at an affordable price.