How CGT Is Calculated on a Buy-to-Let Sale: Step-by-Step Worked Examples

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.

Do you pay capital gains tax when you sell a rental property?

Yes. Capital gains on rental property are taxed at 18% on the part of your gain that fits inside your unused basic-rate band and 24% on everything above it, after your £3,000 annual exempt amount for 2026/27. If tax is due, you have 60 days from completion to report the sale and pay it.

Three things set the bill when you are selling a rental property. What the property cost you, including the costs of buying it and any capital improvements you made. What you sold it for, after estate agent and legal fees. And how much of your basic-rate band is still free in the tax year the sale falls into, because that is what decides how much of the gain is taxed at 18% rather than 24%.

Each sale stands on its own, so if you are selling rental property out of a portfolio you run the same five steps for every disposal before the year's gains and losses are added together. Nothing else moves the number. Not how long you owned it, not whether you reinvest the money, and not what is left on the mortgage. The five steps below turn those three inputs into a figure you can file, and the worked examples after them cover the variants we see most: a higher-rate landlord, a gain that straddles the bands, a former home, joint owners, and a year with losses in it.

If you would rather read the same five steps as a plain walkthrough than as worked examples, our guide to how CGT is calculated when you sell a buy-to-let takes them one at a time.

What can you deduct when you sell a rental property?

You can deduct what you paid for the property, the costs of buying it, the cost of capital improvements you made while you owned it, and the costs of selling it. You cannot deduct anything you paid on the mortgage.

That last point catches more landlords than any other, and it reaches us most weeks in one of two forms:

• "Is it cheaper to pay off the buy-to-let mortgage before I sell?" It makes no difference to your CGT. The gain is your net proceeds minus your base cost, and neither figure moves when you clear the borrowing. Paying the mortgage down changes what lands in your bank account on completion, not what HMRC charges you on.
• "Can I offset the interest I paid on an interest-only mortgage?" No. Mortgage interest is an income tax item, relieved against your rental profit during ownership at the basic rate under the Section 24 restriction. It has already had its relief, so it cannot also reduce the gain.

Capital improvements are the deduction most often missed in the other direction. If you added a bedroom, extended, converted a loft or put in central heating where there was none, that spending belongs in your base cost, even if you paid for it a decade ago and never told anyone. What it needs is an invoice describing the work. The table further down this page separates the improvements that count from the repairs that do not.

The five-step calculation

1. Compute net disposal proceeds: sale price minus incidental costs of disposal (legal fees, estate agent fees, sale-specific survey costs).
2. 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.
3. 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).
4. 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).
5. 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 2a: large gain with a small unused basic-rate band

Same band-stacking mechanic as example 2, but with a larger gain and a thinner unused basic-rate slice. This is the typical shape for a long-held BTL where the disposal year's income sits close to the basic-rate threshold.

Sarah bought a Manchester BTL in 2016 for £200,000. She sold it in September 2026 for £320,000. Her total income for 2026/27 (employment plus net rental profit before this disposal) is £45,000. No other disposals, no capital losses. Costs were £5,000 of disposal costs (legal and estate agent fees on sale) plus £15,000 of capital improvements during ownership.

Step 1: net disposal proceeds

• Sale price: £320,000
• Less disposal costs: (£5,000)
• Net proceeds: £315,000

Step 2: base cost

• Purchase price: £200,000
• Capital improvements: £15,000
• Base cost: £215,000

Step 3: chargeable gain

• £315,000 − £215,000 = £100,000

Step 4: AEA

• £100,000 − £3,000 = £97,000 taxable gain

Step 5: rate application

• Basic-rate band remaining: £50,270 − £45,000 = £5,270
• Portion taxed at 18%: £5,270 × 18% = £948.60
• Portion taxed at 24%: (£97,000 − £5,270) × 24% = £91,730 × 24% = £22,015.20
• Total CGT: £22,963.80

The unused basic-rate slice saves Sarah roughly £316 versus a flat 24% calculation on the £97,000 taxable gain (£23,280 versus £22,963.80). The arithmetic gets less impactful as the unused slice shrinks, but band-stacking is always worth running through because the rate gap between 18% and 24% is six percentage points on every pound that fits in the basic-rate band. The simplified base cost above omits acquisition costs (SDLT, purchase legal fees, survey) for clarity; a full computation would include them in line with example 1.

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.

Do you have to tell HMRC when you sell a buy-to-let?

Yes, if there is CGT to pay: HMRC wants the return and the money within 60 days of completion. If the gain is covered by your £3,000 annual exempt amount, by losses or by Private Residence Relief and you are UK resident, there is nothing to file in those 60 days. The full filing and payment sequence, including the non-resident rule and what happens on Self Assessment afterwards, is in the reporting section below.

Sold at a loss? Nothing is due and no 60-day return is needed, but claim the loss anyway, within four years of the end of the tax year, so it is sitting there against your next gain.

What if you sell one buy-to-let and buy another?

You still pay the CGT on the sale. Buying another rental property does not defer, reduce or roll over the gain, however quickly you reinvest the proceeds. The tax is triggered by the disposal, and the 60-day clock runs from completion on the sale regardless of what you do next with the money.

Roll-over relief, which does let you defer a gain by reinvesting, applies to assets used in a trade. A residential letting business is an investment business rather than a trade, so its properties do not qualify. The same reasoning is why Business Asset Disposal Relief is not available on a standard buy-to-let disposal.

The practical consequence is a cash-flow one. If you are selling one property to fund the deposit on the next, set the CGT aside on completion rather than committing all of the proceeds, because the bill is due 60 days later and it does not wait for the new purchase to settle.

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.

Can you avoid capital gains tax on a rental property?

You cannot avoid it on a taxable gain, but you can usually reduce it, and the honest list of ways to avoid capital gains tax on property is short enough to fit in five bullets. Every one of them is already somewhere in the five steps above.

• Two annual exempt amounts instead of one. A property held jointly by a married couple carries £6,000 of exempt gain rather than £3,000.
• A pre-sale transfer to the lower-earning spouse. Example 4 above shows the mechanic: shifting a share to a partner with unused basic-rate band moves part of the gain from 24% to 18%. The transfer has to happen before the sale and has to be genuine.
• Improvement spending you forgot about. Every extension, conversion or new-build element you can evidence with an invoice comes off the gain itself, so it saves you 24p or 18p in the pound depending on your rate.
• Losses, including old ones. A loss claimed in an earlier year and carried forward is still available. In-year losses come off before your annual exempt amount, brought-forward losses only after it and only down to the allowance, which is what stops the old loss being wasted on gain the allowance would have covered anyway.
• Timing, measured from exchange. The tax year of a disposal is set by the date you exchange contracts, not the date you complete. A contract exchanged on 6 April rather than 5 April falls into the following tax year, which can hand you an unused annual exempt amount and an unused basic-rate band. It does not push back the payment date, because where CGT is due that still runs 60 days from completion.

What does not work is moving back into a rental property to clear the gain. Private Residence Relief is time-apportioned across your whole period of ownership, so a year back in a property you have owned for fifteen adds roughly a fifteenth of relief and no more. The final nine months already qualified if the property was ever your main residence, so moving back does not buy them a second time.

The wider survey of the reduction levers, including incorporation and deferral routes that sit outside a single disposal, is in our guide to reducing CGT on a property disposal. The rates, allowances and regime as a whole are in the CGT on UK property complete guide.

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.