What Is Capital Gains Tax When Selling a Rental Property?

When you sell a rental property that has increased in value, you may owe capital gains tax on selling rental property. This tax applies to the profit you make from the sale, not the total sale price. For UK landlords, understanding how this tax works is essential to avoid unexpected bills and HMRC penalties.

In the 2025/26 tax year, the capital gains tax rate on real estate investment property is 18% for basic rate taxpayers and 24% for higher rate taxpayers. These rates apply to residential property disposals, including buy-to-let properties, second homes, and inherited rental properties.

Every individual has an annual exempt amount of £3,000. This means you only pay tax on gains above this threshold. If you sell a property jointly with a spouse or civil partner, you each get your own £3,000 allowance, effectively doubling the tax-free amount to £6,000.

How Is Capital Gains Tax Calculated on a Rental Property?

Calculating capital gains when selling investment property involves a straightforward formula: Sale Price minus Purchase Price minus Allowable Deductions equals Chargeable Gain. You then subtract your annual exempt amount and apply the relevant tax rate.

Here is a worked example for a landlord selling a rental property in 2025/26:

  • Sale price: £250,000
  • Purchase price: £180,000
  • Gross gain: £70,000
  • Allowable deductions: £8,000 (estate agent fees, legal fees, stamp duty on purchase)
  • Net gain: £62,000
  • Annual exempt amount: £3,000
  • Taxable gain: £59,000

If this landlord is a higher rate taxpayer, the CGT bill would be £59,000 × 24% = £14,160. If they are a basic rate taxpayer, the first portion of their gain that falls within the basic rate band is taxed at 18%, and any excess at 24%.

What Deductions Can You Claim Against Capital Gains?

When calculating capital gains on selling rental property, you can deduct certain costs to reduce your taxable profit. These are known as allowable costs and include:

  • Purchase costs: Stamp duty land tax, legal fees, survey costs, estate agent fees paid when buying
  • Improvement costs: Capital improvements that add value to the property, such as a new kitchen, extension, or loft conversion. Routine repairs and maintenance are not deductible for CGT purposes
  • Sale costs: Estate agent fees, legal fees, EPC certificates, and any other costs directly related to selling

You cannot deduct mortgage interest, insurance premiums, or general running costs from your capital gain. These are revenue expenses claimed against rental income under the Section 24 rules.

For a full breakdown of what you can and cannot claim, see our complete list of landlord tax deductions.

When Do You Need to Report and Pay CGT?

Since 2020, UK residents must report and pay capital gains tax when selling investment property within 60 days of completion. This is a strict deadline. Missing it can result in penalties and interest charges.

The 60-day reporting requirement applies to residential property disposals where capital gains tax is due. You must submit a Capital Gains Tax on Property return via your HMRC online account. You can also use the HMRC app or paper form if you prefer.

You still need to include the disposal in your annual Self Assessment tax return, even after filing the 60-day report. The tax you pay at the 60-day point is an interim payment. Any underpayment or overpayment is reconciled when you file your Self Assessment.

What About Principal Private Residence Relief?

If you have lived in the property as your main home at any point, you may qualify for Principal Private Residence Relief. This relief exempts the gain from CGT for the period you lived there, plus the final 9 months of ownership.

For example, if you owned a property for 10 years and lived in it for 5 years, 50% of the gain would be exempt. The remaining 50% would be subject to CGT as a rental property gain.

If you let out part of your main home, you may also qualify for Letting Relief. However, this relief was significantly restricted from April 2020 and now only applies if you lived with your tenant. Most landlords no longer qualify.

For more detail, read our guide on Principal Private Residence Relief for landlords.

How Does Joint Ownership Affect CGT?

If you own a rental property jointly with a spouse, civil partner, or business partner, each owner is treated separately for CGT purposes. The gain is split according to your ownership share, typically 50:50 for joint tenants or according to the tenancy in common agreement.

Each owner gets their own £3,000 annual exempt amount. This can be particularly useful for married couples where one spouse has unused basic rate band. By transferring ownership shares before sale, you could reduce the overall CGT bill.

However, be aware of the Section 24 rules on mortgage interest relief and how joint ownership interacts with rental income tax. Our Section 24 guide covers this in detail.

Can You Reduce CGT by Incorporating?

Some landlords consider transferring their rental properties into a limited company to reduce future CGT. When you sell a property owned by a company, the gain is subject to corporation tax at 19% or 25%, rather than CGT at 18% or 24%.

However, transferring a property to a company is itself a disposal for CGT purposes. You would trigger a CGT charge on the gain at the point of transfer. This is known as a deemed disposal.

Incorporation can still be beneficial if you plan to hold properties long-term and reinvest profits. But the upfront CGT cost can be significant. Our buy-to-let limited company guide explains the pros and cons.

What If You Sell at a Loss?

If you sell a rental property for less than you paid, you make a capital loss. This loss can be offset against other capital gains in the same tax year or carried forward to future years.

You cannot offset a capital loss against your general income. It only reduces gains on other asset sales. If you have no gains in the year of the loss, you carry it forward indefinitely until you have a gain to offset it against.

Losses must be reported to HMRC within 4 years of the end of the tax year in which they occurred. If you miss this deadline, the loss is lost.

Non-Resident Landlords and CGT

If you are a non-resident landlord selling UK property, you are still liable for UK capital gains tax. The same rates apply: 18% basic rate and 24% higher rate. However, you have a 60-day reporting requirement that applies from the date of completion, just like UK residents.

Non-residents must also register with HMRC for the Non-Resident Landlord Scheme if they receive rental income. This scheme typically requires letting agents to withhold 20% of rental income for tax.

For more on this, see our complete CGT property guide.

Making Tax Digital and CGT Reporting

From April 2026, Making Tax Digital for Income Tax becomes mandatory for landlords with gross property income over £10,000. This means you will need to keep digital records and submit quarterly updates to HMRC.

While MTD does not directly change how you report CGT on property sales, it does mean your rental income and expenses will be tracked digitally. This can make it easier to identify when a sale is likely to trigger a CGT liability.

Our MTD for landlords guide explains what you need to do to prepare.

Common Mistakes Landlords Make with CGT

Many landlords make avoidable errors when calculating and reporting capital gains on selling rental property. Here are the most common:

  • Forgetting the 60-day deadline: Missing this deadline means automatic penalties. Set a calendar reminder as soon as you exchange contracts.
  • Not claiming all allowable costs: Many landlords forget to include stamp duty, legal fees, and improvement costs. Keep all receipts from purchase through to sale.
  • Confusing repairs with improvements: Repairs are revenue expenses claimed against rental income. Improvements are capital expenses that reduce your CGT. A new boiler is a repair; a new kitchen extension is an improvement.
  • Ignoring the annual exempt amount: You get £3,000 tax-free each year. If you sell multiple properties in the same year, you only get one allowance, not one per property.
  • Not considering the timing of the sale: Selling early in the tax year gives you more time to use your annual exempt amount against other gains. Selling late in the year may mean you cannot use it effectively.

When Should You Get Professional Advice?

Capital gains tax on property is one of the most complex areas of UK tax law. If your situation involves any of the following, you should speak to a specialist property accountant:

  • Multiple property sales in the same tax year
  • Properties that were your main home at some point
  • Joint ownership with complex ownership shares
  • Non-resident status or overseas income
  • Properties held in a company or trust
  • Significant capital improvements that need valuing

A good property accountant can help you structure your sale to minimise tax, ensure you meet all reporting deadlines, and avoid costly mistakes. Our guide on what a property accountant does explains the value they bring.

If you are considering selling a rental property, we recommend getting a CGT calculation done before you exchange contracts. This gives you time to plan and potentially reduce your tax bill. Contact our team for a consultation.

Summary of Key Points for 2025/26

  • CGT rates on residential property: 18% basic rate, 24% higher rate
  • Annual exempt amount: £3,000 per individual
  • Reporting deadline: 60 days from completion
  • Allowable deductions: Purchase costs, improvement costs, sale costs
  • Principal Private Residence Relief: Exempts gain for period lived in plus final 9 months
  • Joint ownership: Each owner gets own allowance and reports separately
  • Losses: Can be carried forward but must be reported within 4 years
  • Non-residents: Same rates and 60-day reporting apply

For a complete overview of property investment tax, see our property investment tax guide. And if you need help with your specific situation, explore our services or get in touch.