The CGT calculation on a buy-to-let sale follows a fixed five-step sequence. Each step has its own pitfalls, the largest of which is mis-classifying capital improvements (which enter the base cost and reduce the gain) versus revenue repairs (which are income tax expenses claimed during ownership and cannot enter the base cost). This guide walks through the calculation with five worked examples covering the variants we see most often.
For the broader CGT framework (current rates, the annual exempt amount, the regime as a whole) see the CGT on UK property complete guide. For 60-day reporting mechanics see the CGT payment deadlines page. This page focuses on the computation itself.
The five-step calculation
- Compute net disposal proceeds: sale price minus incidental costs of disposal (legal fees, estate agent fees, sale-specific survey costs).
- Compute base cost: acquisition cost plus incidental costs of acquisition (SDLT, purchase legal fees, survey) plus capital enhancement expenditure (extensions, new kitchens, conversions). Revenue repairs are excluded.
- Compute chargeable gain: net disposal proceeds minus base cost. Apply any specific reliefs (Private Residence Relief if the property was at some point a main residence, Letting Relief in narrow circumstances).
- Apply losses and annual exempt amount: deduct any in-year capital losses and brought-forward capital losses (compulsory), then deduct the £3,000 annual exempt amount (2026/27).
- Apply CGT rate(s): split the remaining taxable gain across the 18% basic-rate band and 24% higher-rate band based on total income.
Steps 1 and 2 are accounting; step 3 introduces the relief framework; step 4 brings in the personal allowances; step 5 applies the rate table.
Worked example 1: straightforward higher-rate landlord
Joel bought a Manchester BTL in October 2016 for £170,000. He sold it in June 2026 for £255,000. He is a higher-rate taxpayer with employment income of £75,000 in 2026/27. He has no other disposals and no capital losses.
Step 1: net disposal proceeds
- Sale price: £255,000
- Estate agent fees (1.4%): £3,570
- Legal fees on sale: £1,200
- Net proceeds: £250,230
Step 2: base cost
- Purchase price: £170,000
- SDLT on purchase (including 3% surcharge then in force): £6,400
- Purchase legal fees: £950
- Survey on purchase: £450
- 2019 new boiler and central heating upgrade (capital improvement): £6,800
- 2022 loft conversion to a third bedroom: £19,500
- Base cost: £204,100
Step 3: chargeable gain
- £250,230 − £204,100 = £46,130
Step 4: AEA
- £46,130 − £3,000 = £43,130 taxable gain
Step 5: rate application
Joel's other income (£75,000) exceeds the basic-rate threshold (£50,270), so the entire taxable gain falls in the higher-rate band:
- £43,130 × 24% = £10,351.20 CGT
Joel files the 60-day return by 60 days after completion and pays £10,351.20. The same disposal appears on his 2026/27 SA108, where the figure is confirmed (or adjusted) once final income for the year is known.
Worked example 2: gain spanning the basic and higher-rate bands
Priya bought a Birmingham BTL in 2014 for £140,000. She sold it in 2026 for £215,000. Employment income for 2026/27 is £38,000. No capital losses. Assume £4,500 of SDLT plus £900 legal fees on purchase, £550 survey, £14,000 of 2019 capital improvements, £4,800 estate agent fees and £900 legal fees on sale.
Net proceeds: £215,000 − £4,800 − £900 = £209,300
Base cost: £140,000 + £4,500 + £900 + £550 + £14,000 = £159,950
Chargeable gain: £209,300 − £159,950 = £49,350
After AEA: £49,350 − £3,000 = £46,350 taxable gain
Rate application:
- Basic-rate band remaining: £50,270 − £38,000 = £12,270
- Portion taxed at 18%: £12,270 × 18% = £2,208.60
- Portion taxed at 24%: (£46,350 − £12,270) × 24% = £34,080 × 24% = £8,179.20
- Total CGT: £10,387.80
Priya's effective CGT rate on this gain is about 22.4%, weighted by the band split. The mechanics matter most when the gain straddles the threshold: the slice of the gain in the basic-rate band is taxed at 18%, the remainder at 24%.
Worked example 3: former main residence (Private Residence Relief)
Daniel bought a London flat in May 2014 for £320,000 and lived in it as his main residence from May 2014 to April 2018 (48 months). He then let it out from May 2018 to April 2026 (96 months) and sold it on 30 April 2026 for £470,000. Total period of ownership: 144 months. He is a higher-rate taxpayer.
Assume £14,200 of SDLT plus £1,500 legal fees on purchase, £8,500 estate agent fees and £1,800 legal fees on sale.
Net proceeds: £470,000 − £8,500 − £1,800 = £459,700
Base cost: £320,000 + £14,200 + £1,500 = £335,700
Gross gain: £459,700 − £335,700 = £124,000
Private Residence Relief calculation:
- Period as main residence: 48 months
- Final 9 months of ownership: deemed occupation (qualifies for PRR even though let)
- Total qualifying period for PRR: 48 + 9 = 57 months
- Total ownership period: 144 months
- PRR fraction: 57 / 144 = 39.58%
- PRR amount: £124,000 × 39.58% = £49,083
Letting Relief check: from 6 April 2020, Letting Relief only applies where the owner shared occupation with the tenant during a period of letting. Daniel did not share occupation, so Letting Relief is not available.
Chargeable gain after PRR: £124,000 − £49,083 = £74,917
After AEA: £74,917 − £3,000 = £71,917 taxable gain
Rate application (higher-rate taxpayer, no band remaining at 18%): £71,917 × 24% = £17,260.08 CGT
PRR is on a strict time-apportioned basis. The longer the property was a main residence relative to total ownership, the larger the relief. Daniel's nearly four years of main-residence occupation saved roughly £11,800 of CGT in this example.
Worked example 4: joint ownership with mismatched incomes
Emma and Tom own a Bristol BTL jointly (50/50). They bought it in 2017 for £225,000 (plus £8,000 acquisition costs) and sell it in 2026 for £310,000 (after £6,500 of disposal costs). No capital improvements during ownership. Emma's 2026/27 income is £80,000 (higher-rate). Tom's income is £18,000 (well within basic-rate band).
Joint gain: £310,000 − £6,500 − £225,000 − £8,000 = £70,500
Each spouse's share: £35,250
Each spouse applies their own AEA: £35,250 − £3,000 = £32,250 taxable
Emma (higher-rate throughout): £32,250 × 24% = £7,740
Tom (basic-rate band remaining):
- Basic-rate band remaining: £50,270 − £18,000 = £32,270
- Tom's £32,250 gain fits entirely in the basic-rate band: £32,250 × 18% = £5,805
Combined CGT: £7,740 + £5,805 = £13,545
For comparison, if Emma had held the property alone, her CGT would have been (£70,500 − £3,000) × 24% = £16,200. The 50/50 ownership has saved £2,655 by accessing Tom's spare basic-rate band and a second AEA.
This is the simplest form of pre-sale planning: shifting beneficial ownership to a lower-rate spouse before disposal. The transfer must be on the no-gain-no-loss basis under section 58 TCGA 1992 (which is automatic for spouses and civil partners), and must reflect genuine beneficial ownership rather than a purely paper arrangement.
Worked example 5: capital loss offset
Same facts as example 1 (Joel's Manchester BTL, gross gain £46,130), but Joel also has a £15,000 capital loss brought forward from a 2023/24 share disposal and a £5,000 capital loss on a 2026/27 disposal of shares earlier in the year.
Compulsory in-year loss offset (before AEA):
- £46,130 − £5,000 = £41,130
Brought-forward loss offset (only enough to bring the gain down to the AEA):
- £41,130 − (£41,130 − £3,000) = £3,000 (keeping £3,000 to absorb the AEA)
- Brought-forward losses used: £38,130
- Brought-forward losses remaining: £15,000 − £38,130 = none, since the brought-forward loss is only £15,000 to begin with
Recalculating cleanly with the right figures:
- Gain after in-year loss: £41,130
- Brought-forward loss available: £15,000, all of which can be used
- Net gain: £41,130 − £15,000 = £26,130
- AEA: £26,130 − £3,000 = £23,130 taxable
- Higher-rate-only: £23,130 × 24% = £5,551.20 CGT
The combined £20,000 of losses has reduced Joel's CGT from £10,351.20 to £5,551.20, a saving of £4,800. Note the rule on brought-forward losses: they are only used to the extent needed to bring the gain down to the AEA. The £3,000 AEA is preserved rather than wasted.
Capital improvements versus revenue repairs: the most common error
Misclassifying repair work as a capital improvement (or vice versa) is the single most frequent source of CGT calculation errors. The distinction sits in HMRC's PIM2020 for the income-tax side and runs symmetrically on the CGT side.
| Item | Capital (enters CGT base cost) | Revenue (claimed against rental income) |
|---|---|---|
| Replacing a like-for-like kitchen | Yes | |
| Replacing a basic kitchen with a luxury fitted kitchen | Yes (the uplift only) | Partially |
| Loft conversion creating a new bedroom | Yes | |
| Roof repair (replacing damaged section) | Yes | |
| Full roof replacement | Generally yes if substantively different | |
| Double glazing replacing single glazing | HMRC accepts as revenue (PIM2020) | Yes |
| New extension | Yes | |
| Boiler replacement (like-for-like) | Yes | |
| New central heating system where there was none | Yes | |
| Redecoration between tenancies | Yes |
The general principle: restoration to original condition is revenue; creation of something materially better, larger or different is capital. Where work spans both (new luxury kitchen replacing a basic one), an apportionment may be needed. HMRC's PIM2020 page sets out the framework with examples.
An item claimed as a revenue repair during ownership cannot also be added to the CGT base cost (it would be double-counting the same expenditure). Conversely, an item missed at the time of acquisition or improvement can still be added to the base cost on disposal provided it was genuinely capital and properly documented.
Part-disposal and other less common situations
Some disposals do not fit the standard "one property in, one property out" pattern. The mechanics adapt as follows:
- Part-disposal of a property. Section 42 TCGA 1992 applies. The base cost is apportioned by the A / (A + B) formula, where A is the consideration for the part disposed of and B is the market value of the remaining part. Selling a strip of garden separately, for example, takes only the apportioned fraction of the base cost.
- Gift to anyone other than a spouse or civil partner. Treated as a market value disposal under section 17 TCGA 1992. The deemed proceeds are the property's market value at the date of gift, not the actual consideration paid (often zero). CGT crystallises on the deemed gain.
- Transfer between spouses or civil partners. Section 58 TCGA 1992 applies. The receiving spouse inherits the original base cost; no gain or loss arises on the transfer. On subsequent sale to a third party, the gain is computed against the original (transferring spouse's) base cost.
- Deemed disposal at market value. Other deemed-disposal events (transfer to a connected party other than a spouse, certain trust events, certain corporate events) similarly use market value rather than actual consideration.
Reporting and payment: tying the calculation back to compliance
Once the calculation is complete, the reporting and payment workflow is:
- Within 60 days of completion: file the CGT on UK property return and pay any CGT due. UK residents only file where CGT is due (gains covered by PRR, losses, or the AEA do not trigger the filing). Non-UK residents file for any UK land disposal regardless of tax due.
- On the Self Assessment return for the tax year: include the same disposal on the SA108 capital gains pages of the SA100. CGT paid through the 60-day return is offset against the final SA liability.
- By 31 January following the tax year end: file the SA return online (or 31 October for paper) and settle any balancing payment.
The 60-day return is a strict deadline with automatic late-filing penalties from day 61, even where no tax is eventually due. The full mechanics are in our 60-day CGT deadlines page.
How the calculation interacts with the 2027 income tax change
From 6 April 2027, separate property income tax rates of 22% basic, 42% higher and 47% additional rate apply to rental profit (announced in the Autumn Budget, scheduled for Finance Act 2026). The change is to income tax on rental profit, not to CGT rates on disposal. CGT on residential property remains at 18% basic and 24% higher rate with no confirmed change for 2027.
The 2027 change affects the disposal-timing decision (covered in our 2027 property tax and CGT disposal timing page) but does not change the mechanics of the calculation itself. The five-step computation above continues to apply.
Records and documentation
The calculation is only as defensible as the documentation behind it. Retain:
- Original purchase contract, completion statement and SDLT return
- Purchase legal fee invoices, survey invoices
- All capital improvement invoices with itemised descriptions of work (so the capital vs revenue split can be evidenced)
- Photographs of the property before and after major improvements where useful
- Tenancy records showing the periods of letting (relevant for PRR computation)
- Council tax bills, utility bills, electoral roll entries showing main residence periods (relevant for PRR)
- Sale completion statement, sale legal and estate agent invoices
- The CGT computation worksheet linking it all together
HMRC's standard retention period for business taxpayers (which includes most landlords) is five years and 10 months from the end of the relevant tax year. In practice, retain records for at least six years after the disposal, with longer retention for any unusual feature of the computation.