Capital Gains Tax, or CGT, is the tax you may pay when you dispose of a rental property at a profit. The tax is on the gain, not on the full sale price. That sounds simple, but the final number depends on rates, reliefs, allowable costs and a strict 60-day reporting deadline.
For many landlords, the expensive part is not just the tax bill itself. It is leaving the calculation until the sale has already completed.
When do landlords pay Capital Gains Tax on rental property?
If you own a buy-to-let or other investment property personally and sell it for more than your adjusted cost, you may have a chargeable gain.
HMRC’s property guidance makes the basic scope clear: CGT can apply to buy-to-let properties, second homes, land and other property that is not your main home.
You usually look at CGT when you:
- Sell the property
- Gift it, other than in limited exempt cases
- Transfer it for less than market value
- Dispose of part of the property
When CGT usually does not apply
- Transfers to a spouse or civil partner, in many cases
- Sales where no chargeable gain arises after allowable costs and reliefs
- Situations where the property fully qualifies for Private Residence Relief
Important: Rental profit tax and Capital Gains Tax are separate. You can have no rental profit in one year and still face CGT when you sell.
What are the current CGT rates for residential property?
The current GOV.UK rates page states that, for gains from 6 April 2025 onwards, residential property gains are generally taxed at:
| Tax position | CGT rate on residential property gains |
|---|---|
| Gain within unused basic rate band | 18% |
| Gain above that band | 24% |
The annual exempt amount is now much smaller than it used to be, which is why older landlord advice often understates the bill.
Why your income still matters
The rate is not determined by gain alone. HMRC looks at your taxable income and then sees how much of the gain fits inside any unused basic rate band.
That is why two landlords can sell identical flats at the same gain and pay different amounts.
Did you know? The rate cut from 28% to 24% for higher-rate residential gains helped, but the smaller annual allowance still leaves many landlords with larger CGT bills than they expected a few years ago.
How to calculate the gain on a rental property
The core calculation is:
Sale proceeds minus purchase cost minus allowable buying and selling costs minus capital improvements minus available reliefs and annual exempt amount
Costs you can usually deduct from the gain
| Usually allowable against the gain | Usually not deductible against the gain |
|---|---|
| Purchase price | Mortgage capital repayments |
| Stamp Duty Land Tax on purchase | Routine repairs already claimed against rental income |
| Solicitor and conveyancing fees on purchase | Ongoing running costs like insurance or agent fees |
| Estate agent and solicitor fees on sale | Mortgage interest |
| Capital improvements | General maintenance |
A useful rule is this: if the spending improved the asset in a capital sense, it may reduce the gain. If it was a normal revenue expense already used against rental income, it usually does not reduce the gain again.
Example calculation
| Item | Amount |
|---|---|
| Sale price | £350,000 |
| Purchase price | £250,000 |
| SDLT and purchase legal fees | £8,000 |
| Capital improvement works | £12,000 |
| Sale legal and agent fees | £6,000 |
| Gain before allowance | £74,000 |
You would then consider any reliefs and the annual exempt amount before calculating the final tax.
What counts as a capital improvement?
Capital improvements are works that add to or substantially improve the asset, not normal repairs.
Examples often include:
- An extension
- Loft conversion
- New kitchen where the project is part of a broader upgrade rather than repair
- Structural reconfiguration
Replacing worn items with modern equivalents can still be a repair rather than an improvement. The line matters because it changes whether the cost belongs in the annual rental accounts or in the eventual CGT calculation.
Attention: If you have already deducted a cost as a revenue expense against rental income, you cannot normally claim the same spend again to reduce the capital gain.
The 60-day reporting rule
For most sales of UK residential property, HMRC requires individuals to report and pay CGT within 60 days of completion.
This is one of the easiest rules to miss because many landlords still think the whole issue can wait until the annual Self Assessment return.
What you usually need to do
- Work out the estimated gain.
- File a UK property return with HMRC.
- Pay the estimated CGT due within 60 days of completion.
- Also include the disposal on your Self Assessment return for that tax year.
The starting point is HMRC’s property sale guidance at Tax when you sell property.
What reliefs can reduce CGT on a rental property?
Private Residence Relief
If the property was once your genuine main home, you may get Private Residence Relief for the period you lived there, plus any additional final-period rules that apply.
This is one reason old former homes converted into rentals need a more careful calculation than straightforward investment purchases.
Lettings Relief
This is far narrower than many older articles suggest. It is not a general landlord relief. In modern cases it is mainly relevant where you shared occupation with the tenant.
Capital losses
If you have allowable capital losses from other disposals, they can help reduce taxable gains.
Spousal planning
In some cases, transferring an interest to a spouse or civil partner before sale can improve the use of annual exemptions and rate bands, but that should be planned properly and not improvised at exchange stage.
What if the property is owned through a limited company?
A company does not usually pay CGT in the same way as an individual. Instead, gains are generally dealt with under Corporation Tax rules.
That does not automatically mean lower tax overall. You still need to think about how profits are extracted from the company later.
If you are still choosing your ownership structure, read Sole Trader vs Limited Company for Landlords and Limited Company Buy-to-Let.
Common landlord mistakes with CGT
- Forgetting the 60-day deadline
- Missing purchase and improvement records
- Treating repairs as capital improvements
- Assuming old Lettings Relief rules still apply broadly
- Calculating rates without looking at taxable income
- Ignoring ownership planning until the deal is already closing
Did you know? Many landlords lose money not because the law is especially obscure, but because they cannot evidence old improvement costs when HMRC asks.
What should landlords do before listing a property for sale?
| Situation | Sensible next step |
|---|---|
| Straight buy-to-let sale | Gather purchase and improvement records before marketing |
| Former home turned rental | Check Private Residence Relief before agreeing a price |
| Joint ownership | Review who owns what and how the gain will be shared |
| Limited company owner | Model Corporation Tax and extraction separately |
| Large gain expected | Get tax advice before exchange, not after completion |
Final verdict
Capital Gains Tax on rental property is not something to leave to the conveyancer or to next January. The tax bill is shaped by ownership history, evidence of costs, timing and reliefs.
For a simple investment property, the practical checklist is clear: gather records, estimate the gain early, budget for the 60-day payment and do not assume the allowance will save you. For a more complicated case, especially a former home or jointly owned property, the value is in getting the structure right before the contract is binding.
FAQ
Can I deduct mortgage interest when calculating a capital gain?
No. Mortgage interest is not an allowable deduction in the CGT calculation.
Is Stamp Duty on the original purchase allowable for CGT?
Yes, SDLT on acquisition is generally part of the allowable purchase costs when working out the gain.
What date matters for the 60-day rule?
The key date is usually completion, not exchange.
Do I still need to mention the sale on Self Assessment after the 60-day return?
Yes. In most cases the disposal still needs to appear on your Self Assessment return for the relevant tax year.
Where can I check the official rules?
Start with HMRC’s guides on tax when you sell property and Capital Gains Tax rates.
This article is for general information only and does not constitute tax or financial advice. For guidance specific to your circumstances, consult a qualified accountant or tax adviser.
