Capital Gains Tax When Selling a Rental Property
Do You Pay Capital Gains Tax When Selling a Rental Property?
You may have to pay Capital Gains Tax (CGT) when you sell or otherwise dispose of a rental property for more than its allowable cost.
A disposal is not limited to an ordinary sale. It can also include:
- Giving the property away
- Transferring your share to another person
- Selling the property to a relative for less than market value
- Swapping the property for another asset
- Receiving compensation for the loss or destruction of the property
For most individual landlords, a buy-to-let property is an investment rather than a trading asset. Any increase in value is therefore normally considered under the Capital Gains Tax rules when the property is sold.
CGT applies to the gain rather than the gross proceeds. If you bought a property for £200,000 and later sold it for £300,000, the starting gain is £100,000, not £300,000. You can then consider allowable costs, reliefs, losses and your annual exempt amount before calculating the tax.
You do not normally pay CGT merely because the property has risen in value. The charge generally arises when you dispose of it. Remortgaging a rental property, for example, does not usually create a disposal because you still own the property.
Capital Gains Tax Rates on Rental Property for 2026/27
For individual landlords, the Capital Gains Tax rates applying in the 2026/27 tax year are:
| Part of the taxable gain | CGT rate |
|---|---|
| Amount falling within your unused basic rate band | 18% |
| Amount above the basic rate band | 24% |
Higher and additional rate taxpayers will generally pay CGT at 24% because their taxable income has already used the basic rate band. A basic rate taxpayer may pay 18% on part of the gain and 24% on what exceeds your basic rate threshold.
How to Work Out Which CGT Rate Applies
The rate of CGT you pay is based on your taxable income and taxable gains for the whole tax year. The broad calculation is:
- Work out your taxable income after the Personal Allowance and relevant Income Tax reliefs.
- Calculate the taxable capital gain after, deducting the cost from the gross proceeds, deducting allowable losses, reliefs and the annual exempt amount.
- Identify how much of the Income Tax basic rate band remains unused.
- Charge the part of the gain within that unused band at 18%.
- Charge the balance at 24%.
For 2026/27, the standard UK basic rate band is £37,700 and the individual Capital Gains Tax annual exempt amount is £3,000.
The 60-day property return may need to be prepared before your final income for the year is known. In that situation, you make a reasonable estimate using the information available, then correct the position later if necessary.
How Joint Ownership Affects the Rate
Joint owners do not submit one combined CGT calculation. Each owner calculates the gain on their own beneficial share and applies their own:
- Taxable income
- Unused basic rate band
- Annual exempt amount
- Capital losses
- Available reliefs
Two equal owners could therefore pay different amounts of CGT on the same sale. One may have unused basic rate band available while the other is already a higher rate taxpayer.
How to Calculate Capital Gains Tax on a Rental Property
A straightforward rental property gain can be calculated as follows:
Sale proceeds or market value
Less purchase price or permitted base value
Less allowable acquisition costs
Less allowable disposal costs
Less qualifying capital improvement costs
Equals the initial capital gain
You then deduct any applicable reliefs and allowable capital losses. Finally, deduct the annual exempt amount if it is available. The result is the taxable gain to which the appropriate CGT rate or rates are applied.
Allowable Costs When Selling a Rental Property
Costs must meet the Capital Gains Tax rules. The fact that you spent money on the property does not automatically make it deductible.
Allowable acquisition and disposal costs may include:
- The original purchase price
- Stamp Duty Land Tax, Land and Buildings Transaction Tax or Land Transaction Tax paid on purchase
- Conveyancing and other legal fees directly related to buying or selling
- Estate agent fees
- Auctioneer fees
- Certain valuation or survey costs directly connected with the acquisition or disposal
- Advertising costs directly related to finding a buyer
Capital improvement expenditure may also be allowable where it:
- Enhanced the value of the property
- Was reflected in the property's condition or value when it was sold
- Was not already deducted from rental income or otherwise relieved for tax
Possible examples include:
- Building an extension
- Converting a loft into usable accommodation
- Adding an additional bathroom
- Installing central heating where the property did not previously have it
- Carrying out a substantial structural alteration that improves the property
Whether expenditure is a repair or an improvement depends on the facts. An invoice label alone does not decide the tax treatment.
Costs You Cannot Usually Deduct From the Capital Gain
Common costs that are not normally deductible in the CGT calculation include:
- Mortgage repayments
- Mortgage interest
- Early repayment charges and most financing costs
- Routine repairs and maintenance
- Like-for-like replacement of worn items
- Decorating between tenancies
- Buildings insurance
- Council Tax and utility bills
- Travel to inspect or manage the property
- Costs already claimed against rental income
- The value of your own time or labour
There can be grey areas, particularly where extensive work includes both repair and improvement elements. Keep itemised invoices, contracts, plans and photographs so the expenditure can be reviewed properly rather than treated as one undivided figure.
Worked Example of CGT When Selling a Rental Property
Assume an individual landlord sells a rental property in the 2026/27 tax year with the following figures:
| Item | Amount |
|---|---|
| Sale proceeds | £320,000 |
| Original purchase price | £180,000 |
| SDLT and purchase legal fees | £6,500 |
| Qualifying extension | £30,000 |
| Estate agent and sale legal fees | £7,500 |
The initial gain is:
£320,000 minus £180,000 minus £6,500 minus £30,000 minus £7,500 = £96,000
Assume there is no Private Residence Relief and no capital loss to use. After the £3,000 annual exempt amount, the taxable gain is £93,000.
If the landlord's taxable income is £25,000, there is £12,700 of the £37,700 basic rate band left:
- £12,700 taxed at 18% = £2,286
- Remaining £80,300 taxed at 24% = £19,272
Total estimated CGT = £21,558
This example is deliberately simplified. Other disposals, losses, reliefs and changes to taxable income during the year can alter the final result.
Reliefs and Deductions That May Reduce CGT on a Rental Property
There is no general exemption simply because a property has been rented out. However, several reliefs and deductions may reduce the taxable gain where the conditions are met.
Annual Exempt Amount
Individuals have a £3,000 Capital Gains Tax annual exempt amount for 2026/27. This is an annual allowance for all chargeable gains, not a separate allowance for each property.
If you have already used the allowance against another gain in the same tax year, it will not be available again. Unused annual exempt amount cannot be carried forward.
Most trustees have a lower annual exempt amount of £1,500 for 2026/27, although trust rules can vary.
Private Residence Relief
Private Residence Relief may reduce the gain if the rental property was genuinely your only or main home during part of your ownership.
Relief is generally available for:
- Periods when the property was occupied as your only or main residence
- Certain qualifying periods of absence for example working elsewhere.
- The final nine months of ownership, provided the property qualified as your only or main residence at some point
The calculation is normally time apportioned. You do not usually revalue the property on the date you moved out and started letting it.
For example, suppose a property was owned for 120 months and genuinely occupied as the owner's main home for the first 48 months. If the final nine months do not overlap with the period of occupation, 57 months may qualify for Private Residence Relief. Broadly, 57/120 of the eligible gain could be relieved before considering other adjustments.
Occupation must have the quality of a real residence. Briefly moving into a property before sale does not guarantee relief. HMRC may consider the length, continuity, circumstances and intention of the occupation.
Letting Relief
Letting Relief is much narrower than it once was. For disposals under the current rules, it is generally available only where the owner lived in the property at the same time as the tenant and shared accommodation with them.
Where the conditions are met, the relief is the lowest of:
- £40,000
- The amount of Private Residence Relief due
- The gain attributable to the part of the home that was let while the owner was in shared occupation
A former home that was later rented out in full will not usually qualify for Letting Relief for that later letting period. It may still qualify for Private Residence Relief for actual occupation, qualifying absences and the final nine months.
Allowable Capital Losses
Allowable capital losses can reduce taxable gains.
Losses arising in the same tax year are generally deducted from gains in that year first. If gains remain above the annual exempt amount, unused losses brought forward from earlier years may then be used, normally only to reduce the remaining gains to the annual exempt amount.
Points to remember include:
- A loss must be reported to HMRC before it can be used.
- A capital loss can generally be claimed up to four years after the end of the tax year in which the disposal occurred.
- Rental income losses are not the same as capital losses and cannot simply be set against a property sale gain.
- Special restrictions apply to losses on transactions with connected people.
Transfers Between Spouses and Civil Partners
Transfers between spouses or civil partners who are living together are normally made on a no gain, no loss basis. This means no immediate CGT is charged, but the recipient generally takes over the transferring spouse's historic base cost.
An ownership transfer before a genuine third-party sale can sometimes allow a couple to use both annual exempt amounts and both owners' tax bands. It is not a step to take after contracts are effectively in place, and it must be a real transfer of beneficial ownership.
Professional advice should be obtained before making a transfer because it can affect:
- The eventual CGT calculation
- The allocation of rental income
- Legal ownership and entitlement to sale proceeds
- Mortgage terms and lender consent
- Stamp taxes where debt or other consideration is involved
- Separation or estate planning arrangements
The no gain, no loss rules have additional provisions for separating spouses and civil partners, so advice should reflect the precise dates and circumstances.
Inherited Rental Property
There is generally no CGT charge simply because you inherit a property. For a later sale, the beneficiary's starting value is normally the market value at the date of death, often the probate or Inheritance Tax value, rather than the amount originally paid by the deceased.
Any increase between the date-of-death value and the later sale value may create a gain. Selling costs and qualifying improvement costs incurred after inheritance can also be relevant.
If the property is sold by the estate rather than transferred to a beneficiary first, the personal representatives calculate the estate's gain. The annual exemption and reporting position can differ, so the order and timing of the steps should be reviewed before sale.
Gifts and Sales Below Market Value
Giving a rental property to a family member can still trigger CGT. HMRC will usually use market value rather than the amount actually paid where:
- The property is given away
- It is sold at an undervalue to help the buyer
- The parties are connected
This can produce a CGT liability without providing the transferor with enough cash to pay it. Gifts to a spouse or civil partner living with you and gifts to charity have separate rules.
Business Asset Disposal Relief and Other Business Reliefs
Business Asset Disposal Relief does not normally apply to the sale of an ordinary buy-to-let property because passive property letting is generally an investment activity rather than a trade.
The special Furnished Holiday Lettings tax regime was abolished from 6 April 2025 for Income Tax and CGT purposes. A holiday let sold on or after that date will not qualify for Business Asset Disposal Relief merely because it met the former furnished holiday letting conditions. Limited transitional rules can apply where an actual qualifying furnished holiday letting business ceased before 6 April 2025.
Incorporation Relief, Gift Hold-Over Relief and Business Asset Rollover Relief are also subject to strict trading or business conditions. They should not be assumed to apply to a single buy-to-let property or a simple transfer to a company.
The 60-Day CGT Deadline When Selling a Rental Property
If a UK resident sells a UK residential property and CGT is due, the gain must normally be reported and the estimated tax paid within 60 days of completion.
This is separate from the usual Self Assessment deadline. Waiting until the following 31 January can result in penalties and interest.
Exchange Date Versus Completion Date
Two dates matter when selling a rental property:
- Exchange of contracts: For an ordinary unconditional contract, this will normally determine the CGT disposal date and therefore the tax year in which the gain falls.
- Completion: This starts the 60-day period for filing the UK property return and paying the estimated CGT.
This distinction is particularly important where exchange and completion fall on opposite sides of 5 April. The gain may belong to the earlier tax year even though completion and the reporting deadline fall in the next one.
Conditional contracts and unusual transactions can follow different timing rules. Ask for advice before relying on the standard exchange-date treatment.
Who Must Submit a 60-Day Property Return?
The main rules are:
- A UK-resident individual generally files a UK property return where CGT is payable on a disposal of UK residential property.
- Each joint owner files separately for their own share of the gain.
- Non-UK residents generally report all disposals of UK property or land within 60 days, even where there is no tax to pay or a loss arises.
- UK Companies normally report property gains through their Corporation Tax return rather than the individual CGT on UK property service.
- Trustees and personal representatives can have separate reporting and filing requirements.
A UK resident whose total gains are within the available annual exempt amount will not normally need to use the online UK property reporting service solely for that disposal. However, a disposal may still need to appear on a Self Assessment return. If you are registered for Self Assessment and total disposal proceeds for chargeable assets exceed £50,000 in the tax year, reporting can be required even where no CGT is payable.
What You Need for the UK Property Return
Before starting the report, gather:
- The property address and postcode
- The acquisition date
- The exchange and completion dates
- Your ownership percentage
- Purchase price or other base value
- Sale proceeds
- Buying and selling costs
- Details and evidence of capital improvements
- Occupation and letting dates if claiming Private Residence Relief
- Capital losses available for use
- An estimate of taxable income for the tax year
- Details of other chargeable gains and losses in the year
The online service produces a payment reference after the return is submitted. Use the correct reference so HMRC allocates the payment to the property disposal.
Estimating the Tax Before the Tax Year Ends
The exact CGT rate can depend on income and other gains for the full tax year, but the 60-day deadline may arrive months before those figures are final.
You should make a reasonable estimate using the best information available. Consider expected salary, pension, business profits, rental profit, dividends and other taxable income, along with other capital gains or losses.
If the final liability changes, the property return or Self Assessment position may need to be amended. Paying a cautious estimate can reduce the risk of late-payment interest, but an unnecessarily high estimate can create avoidable cash flow pressure. A properly supported calculation is preferable to an arbitrary figure.
Do You Still Report the Sale on Self Assessment?
Yes, if you are required to complete a Self Assessment tax return, the disposal will generally also need to be included in the Capital Gains Tax section for the relevant tax year.
The tax already paid through the 60-day property return is credited in the final Self Assessment calculation. The return reconciles the original estimate with your final income, gains, losses and reliefs for the year.
The two filings perform different roles:
- The UK property return provides an early report and payment on account.
- Self Assessment finalises the year's overall tax position.
What Happens if You Miss the 60-Day Deadline?
HMRC may charge late-filing penalties and interest on tax paid after the deadline. Further penalties can arise as a return becomes more overdue.
If the deadline has already passed:
- Calculate the gain as soon as possible.
- Submit the outstanding property return without waiting for Self Assessment.
- Pay the estimated CGT and any interest due promptly.
- Check whether there is a reasonable basis to appeal a penalty.
- Keep evidence of any exceptional circumstances that prevented filing.
Do not assume that telling HMRC about the sale on a later Self Assessment return automatically removes the earlier default.
Special Situations When Selling a Rental Property
Property Owned Through a Limited Company
A limited company does not pay personal Capital Gains Tax or receive an individual's annual exempt amount. Instead, a chargeable gain on the sale of a rental property is included in the company's profits for Corporation Tax purposes.
The broad gain calculation still considers the sale proceeds, acquisition cost, directly related fees and qualifying improvement expenditure. A company may also have capital losses available. For older assets, frozen Indexation Allowance up to December 2017 may be relevant.
There can then be a second tax question when the shareholder extracts the sale proceeds from the company. The overall result depends on whether funds are retained, paid as salary or dividends, used to repay amounts owed, or distributed during a formal winding up.
Selling a property owned by a company is also different from selling the shares in the property company. The buyer, legal process and tax consequences are not interchangeable.
Non-UK Resident Landlords
Non-UK residents must generally report disposals of UK land and property within 60 days of completion even if:
- No CGT is due
- The gain is covered by an allowance or relief
- The disposal produces a loss
- They already file a UK Self Assessment return
For UK residential property held by a non-resident individual before 6 April 2015, rebasing to market value at 5 April 2015 may be available. Whole-period and time-apportionment methods may also need to be considered. Different commencement dates can apply to non-residential property and indirect disposals.
Residence status, temporary non-residence and treaty rules can materially change the calculation. Obtain advice early, particularly if a valuation at April 2015 or April 2019 may be required.
UK Residents Selling an Overseas Rental Property
A UK-resident individual may be liable to UK CGT on the sale of an overseas rental property because UK residents are generally taxed on worldwide gains, subject to any applicable relief or special regime.
The UK 60-day property return applies to UK residential property, not an ordinary direct disposal of overseas property. The gain may instead be reportable through Self Assessment. Tax paid in the country where the property is located may qualify for foreign tax credit relief, limited by the relevant rules and any double taxation agreement.
Foreign purchase price, sale proceeds and costs must be converted into sterling at the appropriate transaction-date exchange rates. It is not enough to calculate the gain in the local currency and translate only the final figure.
Selling Part of a Property or Granting a Lease
A disposal can arise without selling the entire freehold. Selling part of the garden, transferring a share, granting a long lease or receiving a capital sum for rights over the land can require a part-disposal calculation.
The original base cost may need to be apportioned between the part disposed of and the part retained using a statutory formula. These calculations should not be approached as a simple percentage of floor area or sale proceeds without checking the rules.
How to Reduce CGT Before Selling a Rental Property
Legitimate planning should take place before exchange of contracts. Once an unconditional sale contract exists, it may be too late to change ownership or implement many planning options.
Review the Property's Full Cost History
Start with the original completion statement and build a schedule covering the entire ownership period. Landlords often overlook old legal fees, stamp taxes and capital improvement projects.
Look for:
- Solicitor and conveyancer statements
- Stamp tax certificates
- Estate agent invoices
- Building contracts and planning documents
- Architect and surveyor invoices
- Building control approvals
- Bank statements supporting large payments
- Photographs showing the property before and after improvements
Do not include a cost simply because there is an invoice. Confirm that it is capital in nature, remains reflected in the property at disposal and has not already received tax relief.
Confirm the Ownership and Occupation Timeline
Check the legal and beneficial ownership throughout the period, particularly if:
- The property is in one name but income has been shared
- A declaration of trust exists
- The property was transferred between spouses
- Ownership percentages changed
- The property was inherited
- It was once used as a main home
Create a month-by-month occupation and letting timeline if Private Residence Relief may apply. Include any periods of absence, nominations of a main residence and dates when another property was occupied.
Check Capital Losses Before Filing
Review both current-year and previously reported losses. A loss that has never been notified to HMRC cannot simply be inserted into the calculation without checking whether it is still within the claim deadline.
The order in which losses are used matters. Current-year losses can reduce gains below the annual exempt amount, while brought-forward losses are generally restricted so they do not waste the available exemption.
Consider the Timing of Exchange
Because exchange normally determines the tax year of disposal, selling shortly before or after 5 April can affect:
- Which year's annual exempt amount is available
- The taxable income used to determine the CGT rate
- Whether other gains and losses fall in the same year
- The Self Assessment filing date
- Cash flow planning
A delay should only be considered if it makes commercial and legal sense. Tax planning should support the transaction rather than put the sale at risk.
Calculate the Tax Before Agreeing How to Use the Proceeds
The CGT payment can fall due before you have completed wider financial planning. Prepare an estimate before exchange and reserve enough cash from completion.
Remember that the apparent equity is not the amount you can safely spend. Sale proceeds may also be needed for:
- Mortgage redemption
- Estate agent and legal fees
- CGT within 60 days
- Company tax or extraction tax where relevant
- Repayment of joint owners or other parties
Common CGT Mistakes Made by Landlords
Avoid these frequent errors:
- Calculating tax on the sale price instead of the gain
- Deducting mortgage debt from the gain
- Treating all refurbishment expenditure as a capital improvement
- Claiming costs that were already deducted from rental profits
- Forgetting purchase SDLT and historic legal fees
- Assuming a former home is fully exempt
- Claiming Letting Relief when the owner and tenant did not share the home
- Using the completion date to choose the tax year instead of checking the exchange date
- Waiting for the Self Assessment deadline and missing the 60-day property return
- Submitting one report for a jointly owned property
- Forgetting to include the disposal again on Self Assessment where required
- Assuming no report is needed because no cash changed hands on a gift
- Using the deceased owner's original cost for inherited property
- Assuming an ordinary buy-to-let sale qualifies for Business Asset Disposal Relief
- Forgetting that non-residents must report UK property disposals even where no tax is due
Capital Gains Tax on Rental Property FAQs
For an individual in 2026/27, taxable gains falling within the unused basic rate band are charged at 18% and the balance is charged at 24%. Your taxable gain is calculated after allowable costs, relevant reliefs, allowable capital losses and the £3,000 annual exempt amount.
CGT is charged on the taxable gain, not the full sale price. The calculation usually starts with the difference between the disposal proceeds and purchase price, then deducts eligible costs and reliefs.
No. The mortgage balance affects how much cash you receive after completion, but it does not normally reduce the capital gain. Mortgage interest and early repayment charges are also not generally allowable in the CGT calculation.
Qualifying capital improvements may be deductible, but normal repairs and maintenance are not. The improvement must generally enhance the property and remain reflected in it when sold. You also cannot claim the same expenditure twice.
You may qualify for Private Residence Relief for genuine periods of main-residence occupation, certain qualifying absences and usually the final nine months of ownership. The remaining gain can still be taxable. Letting Relief is generally limited to periods when you shared the home with the tenant.
Each individual owner can use their own available annual exempt amount against their share of the gain. The allowance may already have been used by other disposals in the same tax year, and each owner must calculate and report their own position.
The 60-day reporting and payment period normally starts on the date the property sale completes. Exchange of unconditional contracts will usually determine the tax year in which the gain arises.
A UK resident does not normally need a 60-day online property return where total gains are within the available annual exempt amount. A Self Assessment reporting requirement can still arise, including where total chargeable disposal proceeds exceed £50,000. A non-UK resident generally reports every disposal of UK land or property within 60 days, even if no tax is due or a loss arises.
Use a reasonable estimate based on the information available and update the tax position later if required. Do not miss the deadline while waiting for the tax year to end.
There is no general rule allowing an individual landlord to defer CGT simply by buying another residential rental property. Business Rollover Relief has strict conditions and ordinary passive letting will not normally qualify.
Not automatically. A transfer to a connected company is generally treated using market value and can trigger CGT and stamp taxes. Incorporation Relief may apply only where detailed conditions are satisfied, including the transfer of a qualifying business as a going concern in exchange wholly or partly for shares. The facts need to be reviewed before any transfer.
HMRC says individuals should generally keep Capital Gains Tax records for at least one year after the relevant Self Assessment deadline, with longer periods applying in some cases. Businesses generally keep records for five years after the deadline. Acquisition and improvement evidence should therefore be retained throughout ownership and for the required period after disposal.
