Capital Gains Tax on Rental Property: A Guide for UK Landlords
Learn how Capital Gains Tax applies when you sell a rental property in the UK. CGT rates, the 60-day rule, reliefs, and how to calculate your gain step by step.
Key Actions
- Gather your purchase records (price, solicitor fees, Stamp Duty, improvement receipts)
- Calculate your expected gain using the formula in this guide
- Check whether Private Residence Relief applies if the property was once your home
- Report and pay any CGT due within 60 days of completion using HMRC's online service
- Include the disposal on your Self Assessment return for the tax year of sale
Capital Gains Tax (CGT) on rental property is the tax you pay on the profit when you sell a buy-to-let or investment property for more than you paid for it. For UK landlords, CGT on residential property is charged at higher rates than other assets, and there is a strict 60-day deadline to report and pay after completion.
This guide covers how to calculate your capital gain, the current CGT rates and allowances for landlords, the 60-day reporting requirement, and reliefs that may reduce what you owe.
How Capital Gains Tax Works on Rental Property
Capital Gains Tax is a tax on the profit (gain) from selling an asset, not on the full sale price. For rental property, the gain is the difference between what you paid for the property (plus allowable costs) and what you sell it for.
CGT on residential property is separate from the Income Tax you pay on rental income. You can owe CGT even if the property was making a loss on rental income.
CGT Rates for Residential Property
Residential property is taxed at higher CGT rates than other assets like shares or business assets.
| Tax band | CGT rate on residential property (2025/26) |
|---|---|
| Basic rate taxpayer | 18% |
| Higher or additional rate taxpayer | 24% |
Which rate you pay depends on your total taxable income plus the gain. If adding the gain to your income pushes you above the basic rate band (£37,700 above the personal allowance in 2025/26), the portion above the threshold is taxed at 24%.
Example: Sarah has taxable income of £30,000 and a taxable gain of £20,000 from selling a rental flat.
- Basic rate band remaining: £37,700 − £30,000 = £7,700
- First £7,700 of gain taxed at 18% = £1,386
- Remaining £12,300 of gain taxed at 24% = £2,952
- Total CGT: £4,338
CGT Annual Exempt Amount for Property Sales
The annual exempt amount is a CGT-free allowance that each individual can use every tax year:
| Tax year | Annual exempt amount |
|---|---|
| 2023/24 | £6,000 |
| 2024/25 | £3,000 |
| 2025/26 | £3,000 |
| 2026/27 | £3,000 (expected, not yet confirmed) |
You deduct this from your total gains before calculating tax. The allowance cannot be carried forward — any unused portion is not carried to the next year. Married couples and civil partners each have their own allowance, so jointly owned property can benefit from two allowances (£6,000 combined in 2025/26).
How to Calculate Your Capital Gain on Property
To calculate your taxable gain, use this formula:
Sale price − allowable costs = taxable gain
Allowable Costs
You can deduct the following from the sale price:
- Original purchase price (or probate value if inherited, market value if gifted)
- Stamp Duty Land Tax paid on purchase
- Solicitor and conveyancing fees on both purchase and sale
- Estate agent fees on the sale
- Costs of improvements that added value — extensions, conversions, new bathrooms, structural work
You cannot deduct:
- Routine maintenance and repairs (painting, fixing a boiler, replacing like-for-like)
- Mortgage interest payments
- Insurance premiums
- Costs already claimed as allowable expenses against rental income
The distinction between repairs and improvements matters here: repairs are claimed against rental income annually, while improvements reduce your CGT when you sell.
Worked Example
James bought a flat for £180,000 in 2015 and sells it for £260,000 in 2025/26.
| Item | Amount |
|---|---|
| Sale price | £260,000 |
| Less: purchase price | −£180,000 |
| Less: Stamp Duty on purchase | −£1,300 |
| Less: solicitor fees (purchase + sale) | −£3,500 |
| Less: estate agent fees | −£3,900 |
| Less: new kitchen and bathroom (improvement) | −£12,000 |
| Total gain | £59,300 |
| Less: annual exempt amount | −£3,000 |
| Taxable gain | £56,300 |
If James is a higher rate taxpayer, his CGT bill would be £56,300 × 24% = £13,512.
The 60-Day CGT Reporting Rule for Property Sales
The 60-day CGT reporting rule requires you to report and pay Capital Gains Tax within 60 days of completing a UK residential property sale. This is separate from your annual Self Assessment return.
How to Report
- Use HMRC's "Report and pay Capital Gains Tax on UK property" online service
- You'll need a Government Gateway account
- Report the disposal details, calculate the gain, and pay the CGT due
- Keep the reference number — you'll need it when filing your Self Assessment return
What Happens if You're Late
| Delay | Penalty |
|---|---|
| Missed 60-day deadline | £100 fixed penalty |
| 6 months late | £300 or 5% of tax due (whichever is greater) |
| 12 months late | Additional £300 or 5% of tax due |
HMRC also charges interest on late payments. The 60-day clock starts from the date of completion (not exchange of contracts).
Important: Even if you file a Self Assessment return, you still need to submit the separate 60-day report. The gain should then also appear on your Self Assessment return for the relevant tax year, but CGT already paid through the 60-day report is credited against your total liability. If you also make payments on account, the CGT payment is handled separately from your Income Tax instalments.
Private Residence Relief for Former Homes
Private Residence Relief (PRR) is a CGT relief that can exempt part or all of the gain if the rental property was once your main home.
How PRR Is Calculated
PRR exempts the proportion of the gain that relates to the time the property was your only or main residence, plus the final 9 months of ownership regardless of use.
Formula:
(Months as main residence + final 9 months) ÷ total months of ownership × total gain = exempt amount
Example: Tom owned a property for 10 years (120 months). He lived in it as his main home for the first 4 years (48 months), then rented it out for the remaining 6 years.
- Qualifying months: 48 (residence) + 9 (final period) = 57 months
- Exempt proportion: 57 ÷ 120 = 47.5%
- If his total gain is £80,000, the exempt portion is £38,000
- Taxable gain: £80,000 − £38,000 = £42,000 (before annual exempt amount)
Additional Periods of Deemed Occupation
Certain absences can count as periods of residence for PRR purposes, provided you lived in the property before and after the absence:
- Up to 3 years for any reason
- Any period working overseas for an employer
- Up to 4 years working elsewhere in the UK where you could not live in the property due to your employment
Lettings Relief
Lettings Relief is now very limited. Since April 2020, it only applies if you let out part of your home while continuing to live in it at the same time. If you moved out entirely and rented the whole property, Lettings Relief does not apply.
When it does apply, the relief is the lowest of:
- The amount of Private Residence Relief
- £40,000
- The gain attributable to the letting
For most landlords selling a property they fully let out, Lettings Relief will not reduce the CGT bill.
Capital Losses, Transfers, and Inherited Property
Capital Losses
If you sell a property for less than you paid (after allowable costs), you make a capital loss. You can offset losses against gains in the same tax year, or carry them forward to reduce future gains. To use them, you generally need to report losses to HMRC within 4 years of the end of the tax year in which they arise.
Transferring to a Spouse
Transfers between married couples and civil partners are treated as occurring at "no gain, no loss" — no CGT is due at the point of transfer. This means the receiving spouse can then sell the property using their own annual exempt amount and potentially at a lower CGT rate.
Inherited Property
If you inherited the rental property, your base cost for CGT purposes is the probate value (market value at the date of death), not the original purchase price. This means you only pay CGT on any increase in value since you inherited it.
Frequently Asked Questions
Do I pay CGT on my only rental property?
Yes. CGT applies to any property that is not your main home, including your only rental property. The fact that it's your only investment property does not provide any exemption.
Can I deduct mortgage payments from my gain?
No. Mortgage repayments and interest are not allowable costs for CGT purposes. The gain is calculated based on the property's purchase price and sale price, plus qualifying costs like improvements and professional fees. Mortgage interest is instead claimed as a tax credit against rental income under the mortgage interest relief rules.
What if I owned the property before it became a rental?
If it was once your main home, you may qualify for Private Residence Relief on the period you lived there plus the final 9 months of ownership. This can significantly reduce your taxable gain — see the PRR section above.
Does Business Asset Disposal Relief apply to rental property?
No. HMRC does not treat standard property letting as a trade, so Business Asset Disposal Relief (formerly Entrepreneurs' Relief) does not apply to buy-to-let or rental properties. The Furnished Holiday Lettings regime, which previously qualified for BADR, was abolished from 6 April 2025.
This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.
Official Sources
- Capital Gains Tax - GOV.UK
- CGT rates - GOV.UK
- Tax when you sell property - GOV.UK
- Report and pay Capital Gains Tax on UK property - GOV.UK
- Private Residence Relief (HS283) - GOV.UK
- CGT rates and allowances - GOV.UK