Get the capital gains tax (CGT) calculation right on a buy-to-let sale and you pay tax only on the real profit. Get it wrong and you either overpay by missing allowable costs, or underpay and face a penalty when HMRC recalculates. The method itself is not complicated, but three things trip landlords up: which costs HMRC actually allows, how the gain pushes you between the 18% and 24% rates, and the 60-day reporting clock that starts at completion.
This guide works through the full calculation with real figures, sets out exactly what you can and cannot deduct, and shows how the rate stacking decides your final bill for 2026/27.
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What CGT applies to on a buy-to-let sale
Capital gains tax is charged on the profit you make when you dispose of a buy-to-let, not on the sale price. The disposal is normally the sale, but a gift, a transfer at undervalue to a connected person, or moving the property into a company all count too. For residential property the rates for 2026/27 are set by TCGA 1992 s.1H:
- 18% on the part of the gain falling within your remaining basic-rate band
- 24% on the part above the basic-rate threshold
These rates have applied since 30 October 2024. The single most misunderstood point is that the rate is not fixed by your salary alone: the gain itself is stacked on top of your income, so a sizeable gain can move a basic-rate taxpayer into the 24% band for most of the profit. The worked example below shows exactly how.
Step 1: Work out your net sale proceeds
Start with the gross sale price, then deduct the incidental costs of disposal. TCGA 1992 s.38 names these specifically: estate agent commission, the conveyancing solicitor's fees, advertising costs, and auctioneer's commission where the property is sold at auction. Surveyor and valuer fees connected with the sale also qualify.
Worked example. A landlord sells a former buy-to-let in Leeds for £400,000. Estate agent commission is £6,000 and conveyancing fees are £2,000.
Net sale proceeds = £400,000 − £8,000 = £392,000.
Step 2: Add up your total base cost
Your base cost is everything you can deduct from the proceeds. It has three parts, all drawn from TCGA 1992 s.38.
Acquisition cost
The original purchase price plus the incidental costs of buying: the Stamp Duty Land Tax you paid (including the additional-dwelling surcharge if it applied), your purchase legal fees, and any survey or valuation costs on acquisition.
In our example: purchase price £250,000 + SDLT £7,500 + legal fees £1,500 = £259,000.
Enhancement expenditure
Capital improvements that increased the value of the property, but only to the extent the improvement is still reflected in the state or nature of the property at the date of sale. That statutory test (s.38(1)(b)) is why a new extension counts but a kitchen you fitted and then ripped out before sale does not. Qualifying items include extensions, loft conversions, a first central-heating installation, and structural improvements.
In our example: loft conversion £25,000 + kitchen renovation £15,000 = £40,000.
What you cannot include
The boundary between a deductible improvement and a non-deductible repair is where most disputes arise, so it is worth being precise.
| Deductible as capital improvement | Not deductible (revenue or excluded) |
|---|---|
| Building an extension or conservatory | Repainting and redecoration |
| Loft or garage conversion adding a room | Replacing a broken boiler with a like-for-like one |
| First installation of central heating or double glazing | Fixing the roof, guttering or damp |
| Adding a new bathroom where there was none | Routine kitchen or bathroom refresh of an existing one |
| Legal costs of defending or establishing title | Mortgage interest (relieved against rent via Section 24, not the gain) |
Repairs and mortgage interest are revenue costs. Interest in particular is relieved against your rental profit through the Section 24 basic-rate tax reducer, and s.38 expressly bars it from the capital gains computation. Trying to deduct it twice is a common and easily spotted error.
Step 3: Calculate the gross gain
Subtract the total base cost from the net sale proceeds:
£392,000 (net proceeds) − £259,000 (acquisition) − £40,000 (enhancements) = £93,000 gross gain.
Step 4: Deduct reliefs, losses and the annual exempt amount
Before tax is calculated, reduce the gross gain by anything that applies:
- Private Residence Relief for any period the property was your only or main home, plus the final 9 months of ownership. If you never lived there, this is nil. See our guide to Private Residence Relief for landlords.
- Allowable capital losses, set against the gain (in-year losses first, then brought-forward losses down to the exemption).
- The annual exempt amount of £3,000 for 2026/27, per individual.
Assuming our landlord never lived in the property and has no losses to carry, the taxable gain is:
£93,000 − £3,000 = £90,000 taxable gain.
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Step 5: Apply the right rate to each slice
This is the step landlords most often get wrong. The taxable gain sits on top of your taxable income for the year. The basic-rate threshold for 2026/27 is £50,270 of total taxable income. Only the part of the gain that still fits below that threshold is taxed at 18%; everything above it is taxed at 24%.
Suppose the landlord has taxable income of £40,000 before the gain. That leaves £10,270 of basic-rate band unused (£50,270 − £40,000).
| Slice of the £90,000 gain | Rate | CGT |
|---|---|---|
| £10,270 (fills remaining basic-rate band) | 18% | £1,848.60 |
| £79,730 (above the higher-rate threshold) | 24% | £19,135.20 |
| Total taxable gain £90,000 | £20,983.80 |
If the same landlord were already a higher-rate taxpayer, the whole £90,000 would be taxed at 24% (£21,600). If both spouses owned the property equally and each used a £3,000 exemption and a slice of basic-rate band, the combined bill would be materially lower again, which is why ownership splitting before a sale is worth planning. The mechanics are in our note on transferring property to a spouse.
Reliefs that reduce the gain in more detail
Private Residence Relief and the let period
If the property was once your home, the relief is apportioned by the time it was your main residence against total ownership, plus the final 9 months which always qualify once the property has been your main home at some point. Lettings relief was withdrawn from April 2020 except where you share occupation with the tenant, so most pure buy-to-let landlords no longer get it.
Spousal transfers and the two exemptions
Transfers between spouses and civil partners living together happen on a no-gain, no-loss basis, so beneficial ownership can be moved across before completion. The result is two annual exempt amounts and two basic-rate bands taxed at 18%. The transfer must be a genuine outright gift of the beneficial interest; HMRC looks at substance, and where the legal title and beneficial split differ, a Form 17 election may be needed for the income side.
Incorporation relief is a deferral, not a saving
Moving a portfolio into a limited company is a disposal at market value for CGT. Section 162 incorporation relief can defer the gain where a genuine property business is transferred wholly or partly for shares, but the gain is rolled into the base cost of the shares rather than wiped out, and there is usually an SDLT charge on the transfer. It is a restructuring decision for active portfolios, covered in our buy-to-let limited company guide, not a way to sell a single property tax-free.
Reporting and paying: the 60-day clock
Two separate obligations apply to a buy-to-let sale, and confusing them is what generates penalties.
- Within 60 days of completion: file a CGT on UK property return and pay the tax due. This is a standalone return, separate from Self Assessment, and the clock runs from the completion date.
- By the following 31 January: report the disposal again on your Self Assessment return, where the figures are finalised against your actual income for the year.
Late-filing penalties apply automatically if the 60-day return is missed, even when the tax is eventually paid through Self Assessment. The full timetable and penalty position are in our guide to CGT payment deadlines on property sales.
Records to keep
Keep the completion statements for both purchase and sale, all improvement invoices, the SDLT return, estate agent and solicitor invoices, and any professional valuations. HMRC can enquire into a CGT computation well after the disposal year, so retain the paperwork for at least six years from the end of the tax year of sale.
Capital losses: claim them in time
A capital loss arises where net disposal proceeds fall below the base cost. Property losses can be set against gains on any chargeable asset, not just other property, but never against income. In-year losses are set against the year's gains before the annual exempt amount is applied, so they can be partly wasted against gains the £3,000 would have covered anyway. Brought-forward losses are more efficient: they are used only down to the exemption, preserving the £3,000.
The deadline that catches people out is the claim deadline. A loss must be claimed to HMRC within four years of the end of the tax year in which the disposal occurred (Taxes Management Act 1970 s.43). Miss that window and the loss is gone for good. Once validly claimed, there is no time limit on using it. The four-year limit is on the act of claiming, not on later use. The claim is made on the SA108 capital gains pages or by separate written notice; the 60-day return is not itself a loss claim.
How April 2027 changes the picture (and how it does not)
From 6 April 2027, property income in England, Wales and Northern Ireland is taxed at separate rates of 22% basic, 42% higher and 47% additional, enacted by Finance Act 2026 (Royal Assent 18 March 2026). Only Scotland is carved out for 2027/28. This is income tax on rental profit, not CGT, so the 18% and 24% disposal rates above are unaffected.
It does change the hold-or-sell maths. With property income taxed slightly higher from 2027/28, the after-tax return on continuing to let can shift, which feeds into the timing of a disposal. Critically, the Section 24 finance-cost reducer rises in step to 22%, so no new basic-rate wedge opens for landlords financing through a mortgage. Our analysis of the 2027 rates and CGT sales sets out how the income-side change interacts with disposal timing.
Planning a disposal across more than one property
If you are selling more than one property, timing is a lever. Completing one sale before 6 April and the next after it splits the gains across two tax years and uses two £3,000 exemptions. Realising a loss-making sale in the same year as a gain offsets the two. And from April 2026 the wider Making Tax Digital for Income Tax regime tightens record-keeping expectations for landlords above the threshold, which makes the clean cost records a CGT computation needs easier to assemble.
For a portfolio, or for a property with mixed private and let use, complicated ownership history, or a borderline repair-versus-improvement question, the computation rewards getting the base cost and reliefs right before completion rather than after. A property accountant works the disposal calculation, the 60-day return and the reliefs together so nothing allowable is left on the table.