What is property tax?

If you live in the UK there is some annual property tax in the form of council tax. This is paid to your local authority monthly or annually.

The rate of council tax you pay depends on the size of the home you live in and the council where you live. Everybody pays council tax, whether you own or rent.

Other taxes that relate to homes in this country are usually payable either when you’re buying, selling or inheriting a property.

If you are renting a home as a buy-to-let, the amount of income you make will be taxable each year, so what you pay in tax will depend on your earnings.

UK property tax is a complicated mixture of things depending on whether you’re a homeowner, a landlord, if you’ve inherited property and the size of your home.

Let’s break them down:

Stamp duty

Stamp duty is the tax you pay the government on any home or land bought in England or Northern Ireland. Scotland and Wales have their own systems.

It's always paid by the buyer, not the seller. But if you’re selling and buying somewhere else, you’ll have to pay it too. 

The amount you pay depends on your situation. If you’re a first-time buyer you don't need to pay any stamp duty on the first £425,000 of a property you're buying.

If you're moving from one home to another, you don't need to pay any stamp duty on the first £250,000 of a property you're buying.

And if you own more than one home, you'll need to pay a stamp duty 'surcharge', which amounts to 3% of the property's overall value, as well as the normal stamp duty rates on the home you’re buying.

Find out more and try our stamp duty calculator.

Capital gains

Capital Gains Tax is a tax on any profit you make when selling an asset, such as a buy-to-let property.

You typically don’t pay Capital Gains Tax if you’re selling your main home. That said, there are still circumstances in which you may need to pay the tax.

The profit that is taxed is the difference in value between what you paid for it and what you’re selling it for. 

The amount of tax you’ll pay depends how much you’ve “gained” and the government gives individuals a Capital Gains Tax allowance.

Find out more in our guide: What is capital gains tax and how does it work?

If someone leaves you a home or other assets after they die you’re liable to pay inheritance tax on it above a certain threshold.

The tax-free threshold is £325,000. So if you inherit a home that's valued above £325,000, you’ll need to pay 40% in tax on the remaining value.

For example, if you inherit a home worth £500,000 and your tax-free threshold is £325,000, the inheritance tax charged will be 40% of £175,000 (£500,000 minus £325,000).

There are variations in how this works:

• It doesn’t apply if you’ve been left an estate by your husband or wife

• The threshold rises to £500,000 if you leave your home to your children or grandchildren

• The level at which the tax kicks in can be as high as £1 million if you pool your tax-free allowance with your partner and leave your home to your children

Find out more in our guide on inheritance tax

Income tax

If you own a property and rent it out, the rental income you receive will be added to any other income for tax purposes, such as employment income or savings. 

You’ll need to declare rental income on a self-assessment tax return each year, but you'll typically be given certain allowances which reduce the amount you shell out to the taxman. 

If you make small amounts from the home you live in each year - for example, by taking a lodger – you have a tax-free allowance of up to £1,000.

Most people have a personal allowance for the tax year (this includes your salary and any other earnings), which is the amount you can earn (including rental income), before being subject to tax. 

The personal allowance stands at £12,570 for the current 2024/25 tax year. Your personal allowance changes if your income is more than £100,000.

You’ll need to file a tax return each year to calculate how much tax is due on your earnings. 

Council tax

Council tax is another bill you can expect to fork out for, whether you own or rent.

The amount you pay is linked to the value of your property at a certain time. In England, homes are put into bands ranging from A (cheapest) to H (most expensive).

The average council tax bill for a band D property is around £2,000 a year or £167 a month, according to professional body CIPFA.

You can apply for a 25% discount if you live on your own.

There are so many variables it’s impossible to say how much property tax is on average, as it will fluctuate according to where you live, the size of your home and how much it's worth.

In the UK, we don’t have a 'wealth tax' on property, like some other countries. This means we don’t get taxed on the value our home accrues annually.

If you make rental income from your home or homes, you’ll need to pay tax on it based on your annual income (see ‘Income tax’, above).

If you’re a landlord who receives rent from a property, this is considered an income for tax purposes.

The rules are pretty complicated around mortgage relief and what you can claim tax relief for, so it's important to stay on top of legislation changes.

Read our full guide on your tax liabilities as a landlord