Landlords pay Capital Gains Tax (CGT) when selling a rental property at a profit. The CGT rate on residential property is 18% for basic rate taxpayers or 24% for higher/additional rate taxpayers. You must report the sale and pay CGT within 60 days of completion.
This guide explains how to calculate CGT on rental property, available reliefs, and reporting requirements.
CGT Rates on Property 2025/26
Residential property has higher CGT rates than other assets:
| Your Tax Band | CGT Rate on Property | |---------------|---------------------| | Basic rate (income up to £50,270) | 18% | | Higher rate (£50,271 – £125,140) | 24% | | Additional rate (over £125,140) | 24% |
Compared to other assets: Shares and other gains are taxed at 10% (basic) or 20% (higher).
Which Rate Do You Pay?
Your CGT rate depends on your total taxable income plus the gain:
- Add your taxable income (salary, rental profit, etc.)
- Add your capital gain
- If the total pushes you into higher rate, pay 24% on that portion
Example:
- Taxable income: £40,000
- Capital gain: £30,000
- Total: £70,000
- Basic rate band remaining: £50,270 − £40,000 = £10,270
- CGT at 18%: £10,270 × 18% = £1,849
- CGT at 24%: (£30,000 − £10,270) × 24% = £4,735
- Total CGT: £6,584
Annual Exempt Amount
The first £3,000 of capital gains each tax year is tax-free (2025/26).
| Tax Year | Annual Exempt Amount | |----------|---------------------| | 2024/25 | £3,000 | | 2025/26 | £3,000 | | Previously | £12,300 (until 2023) |
Note: The exemption reduced significantly in recent years.
If you have gains from multiple sources, the exemption applies to your combined total, not per asset.
Calculating Your Capital Gain
Basic Calculation
Capital Gain = Sale Price − Allowable Costs
Allowable Costs
| Cost Type | Examples | |-----------|----------| | Purchase price | What you paid for the property | | Purchase costs | Stamp duty, legal fees, survey | | Improvement costs | Extensions, conversions, new kitchen (capital items) | | Selling costs | Estate agent fees, legal fees, EPC |
What You CANNOT Deduct
| Cost | Why Not Allowable | |------|-------------------| | Repairs and maintenance | Already claimed against rental income | | Mortgage interest | Not a capital cost | | Insurance | Revenue expense | | Your time | Not a cost |
Calculation Example
Property Purchase (2015): | Item | Amount | |------|--------| | Purchase price | £200,000 | | Stamp duty | £1,500 | | Legal fees (purchase) | £1,200 | | Survey | £400 | | Total acquisition cost | £203,100 |
Improvements Made: | Item | Amount | |------|--------| | Loft conversion (2018) | £25,000 | | New kitchen (upgrade, 2020) | £8,000 | | Total improvements | £33,000 |
Sale (2025): | Item | Amount | |------|--------| | Sale price | £350,000 | | Estate agent fees (1.5%) | £5,250 | | Legal fees (sale) | £1,500 | | Total selling costs | £6,750 |
Capital Gain: | Calculation | Amount | |-------------|--------| | Sale price | £350,000 | | Less: Acquisition cost | −£203,100 | | Less: Improvements | −£33,000 | | Less: Selling costs | −£6,750 | | Gross gain | £107,150 | | Less: Annual exempt amount | −£3,000 | | Taxable gain | £104,150 |
CGT at 24%: £104,150 × 24% = £24,996
Reliefs That Reduce CGT
Private Residence Relief (PRR)
If you lived in the property as your main home for any period, you may qualify for PRR:
- Full relief: Main home throughout ownership = no CGT
- Partial relief: Lived there for some of the time = proportionate relief
- Final 9 months: Always exempt (even if not living there)
Calculation: PRR = Gain × (Months as main home + final 9 months) ÷ Total months owned
Example:
- Owned: 120 months (10 years)
- Lived in as main home: 36 months (3 years)
- Final 9 months: 9 months
- Exempt: (36 + 9) ÷ 120 = 37.5%
- Taxable: 62.5% of gain
Letting Relief
If you qualify for PRR and also let the property, additional Letting Relief may apply:
| Condition | Relief Available | |-----------|-----------------| | Lived in property at some point | Up to £40,000 | | Property let as residential accommodation | Required | | You moved out before letting | Required |
Calculation: Lower of:
- £40,000
- PRR amount
- Gain from letting period
Note: Letting Relief was restricted in 2020. It now only applies if you shared occupancy with the tenant (rare).
Spouse/Civil Partner Transfers
Transfers between spouses or civil partners are CGT-free:
- Transfer property to spouse: no immediate CGT
- Spouse inherits your base cost
- Both can use their £3,000 annual exemptions
- Can move to lower-rate taxpayer before sale
Example: You're a higher-rate taxpayer (24% CGT). Transfer 50% to basic-rate spouse before sale. Their half is taxed at 18%.
Losses
Capital losses offset gains:
- Losses from the same year offset gains first
- Unused losses carry forward indefinitely
- Losses must be reported to HMRC within 4 years
Example: You sell Property A for a £50,000 gain and Property B for a £20,000 loss.
- Net gain: £30,000
- Less annual exemption: £3,000
- Taxable: £27,000
60-Day Reporting Rule
Since April 2020, UK residential property sales must be reported to HMRC within 60 days of completion.
What to Report
| Information | Required | |-------------|----------| | Property address | Yes | | Completion date | Yes | | Sale price | Yes | | Acquisition cost and date | Yes | | Improvement costs | Yes | | Calculation of gain | Yes | | Any reliefs claimed | Yes |
How to Report
Use HMRC's online service: Report and pay Capital Gains Tax on UK property
You'll need:
- Government Gateway account
- Property details
- Financial records
- Bank details for payment
Payment Deadline
Pay CGT within 60 days of completion—at the same time as reporting.
This is a payment on account. You'll finalise on your Self Assessment return, where you may owe more or receive a refund.
Penalties for Late Reporting
| Delay | Penalty | |-------|---------| | Up to 6 months late | £100 | | 6-12 months late | £300 or 5% of tax (whichever higher) | | Over 12 months late | £300 or 5% of tax (plus potential further penalties) |
Interest also accrues on late payments.
CGT vs Income Tax
Be clear about what's subject to CGT vs Income Tax:
| Subject to CGT | Subject to Income Tax | |----------------|----------------------| | Profit on selling property | Rental income | | Value growth over time | Annual rental profit | | One-time event at sale | Ongoing each year |
They're separate: You pay Income Tax on rent each year AND CGT when you sell.
Multiple Properties
If you own several rental properties, each sale is a separate CGT calculation:
- Each property has its own base cost
- Each sale is reported within 60 days
- Your £3,000 annual exemption covers all gains combined
- Losses on one can offset gains on another
Planning: Consider selling one property per tax year to use each year's exemption.
Inherited Property
If you inherited a rental property:
| Aspect | Treatment | |--------|-----------| | Base cost | Market value at date of death | | Gain | Value increase since inheritance | | PRR | Usually none (wasn't your home) |
Example:
- Inherited value (2020): £250,000
- Sale price (2025): £320,000
- Gain: £70,000
No CGT on the growth during the deceased's lifetime—your "acquisition cost" is the probate value.
Reducing Your CGT Bill
1. Use Both Annual Exemptions
If jointly owned with spouse:
- Each has £3,000 exemption
- Combined: £6,000 tax-free
2. Transfer to Lower-Rate Spouse
If one spouse is a basic-rate taxpayer, transfer a share before sale to access the 18% rate.
3. Maximise Deductible Costs
Ensure you claim:
- All purchase costs
- All genuine improvements (not repairs)
- All selling costs
Keep records—you may own a property for decades before selling.
4. Time the Sale
Consider:
- Waiting until a new tax year for fresh annual exemption
- Selling in a year with lower income (lower CGT rate)
- Spreading sales across multiple years
5. Offset Losses
If you have other capital losses (shares, other property), offset against this gain.
6. Pension Contributions
Contributions reduce your taxable income, potentially keeping you in the basic rate band (18% CGT instead of 24%).
CGT When Incorporating
If you transfer a property to a limited company:
- CGT is due as if you sold at market value
- Company acquires at market value
- Stamp Duty Land Tax (SDLT) may also apply
Incorporation relief may defer CGT in some circumstances, but property businesses rarely qualify.
This is complex—seek professional advice before incorporating.
Record Keeping for CGT
Keep for 6 years after sale (or indefinitely if property still owned):
| Document | Why Needed | |----------|------------| | Purchase completion statement | Proves acquisition cost | | Stamp duty receipt | Deductible cost | | Legal invoices (purchase) | Deductible cost | | Improvement invoices | Deductible capital costs | | Sale completion statement | Proves sale price | | Agent invoices | Deductible selling costs | | Legal invoices (sale) | Deductible cost |
Tip: Scan and store digitally. Paper can be lost over decades of ownership.
CGT Calculation with TaxFolio
While TaxFolio focuses on rental income, proper expense tracking supports your CGT calculation:
- Expense categorisation — revenue vs capital tracked separately
- Improvement records — stored with property details
- Historical data — records maintained for years
- Report generation — export data for CGT calculations
- From £69.99/year — comprehensive landlord tax management
Start your free 30-day trial and keep your property records organised.
Summary: CGT Quick Reference
| Aspect | Details | |--------|---------| | CGT rate (basic rate taxpayer) | 18% | | CGT rate (higher/additional) | 24% | | Annual exempt amount | £3,000 | | Reporting deadline | 60 days from completion | | Payment deadline | 60 days from completion | | Late reporting penalty | £100+ |
Key steps:
- Calculate gain (sale price minus costs)
- Deduct annual exemption
- Apply correct rate based on your income
- Report and pay within 60 days
- Finalise on Self Assessment return