CGT on Rental Property UK: A Complete Guide

CGT on rental property: what it is and when it applies

Capital Gains Tax (CGT) is charged on the profit you make when you dispose of an asset that has increased in value. For landlords, the most significant CGT event is selling a buy-to-let property — but CGT can also arise if you give a property away, transfer it to a company, or settle it into a trust.

The key distinction from Income Tax is that CGT is triggered by disposal, not by income. You pay Income Tax on your rental profits each year. You pay CGT when you sell. The two taxes operate independently of each other, which is why mortgage interest — a deductible cost for Income Tax purposes — has no bearing on your CGT calculation whatsoever.

CGT applies to UK residential property when:

• You sell a buy-to-let or second property at a gain
• You transfer the property to another person other than your spouse or civil partner (such as a child or business partner)
• You transfer a property from personal ownership into a limited company
• You give the property away or settle it into trust (disposal at market value)

Your main home — the property you live in — is usually exempt from CGT under Private Residence Relief. Rental properties do not automatically qualify for this exemption, though landlords who previously lived in a property may be able to claim partial relief (covered below).

HMRC's guidance on tax when you sell property sets out in full which disposals are taxable and which reliefs may apply.

CGT rates on rental property in 2026/27

Residential property attracts higher CGT rates than most other assets. For the 2026/27 tax year, the rates are:

To determine which rate applies, add your net capital gain to your taxable income. Any gain that falls within the unused portion of your basic-rate band (up to £50,270 for 2026/27) is taxed at 18%. Any gain above the higher-rate threshold is taxed at 24%.

The rates above are confirmed by HMRC's Capital Gains Tax rates guidance. To model your own figures quickly, use our free CGT calculator.

Annual Exempt Amount: £3,000 in 2026/27

Every individual receives a Capital Gains Tax Annual Exempt Amount (AEA) — sometimes called the CGT allowance — which shields a portion of gains from tax each year. For 2026/27 the AEA is £3,000.

The AEA has fallen sharply in recent years. It stood at £12,300 as recently as 2022/23, was cut to £6,000 for 2023/24, then to £3,000 from 2024/25 onwards. With the current AEA, most landlords selling a property that has appreciated in value will pay CGT on the vast majority of their gain.

Important points about the AEA:

• It cannot be carried forward. If you do not use it in a tax year, it is lost permanently.
• Married couples and civil partners each have their own £3,000 allowance — making £6,000 combined if both have gains in the same year.
• The AEA is set against net gains after losses — not gross gains before losses.
• Trusts have a lower AEA of £1,500 (half the individual amount).

Planning a sale at the end of a tax year versus the start of the next can mean the difference between using this year's AEA and next year's — effectively doubling the exempt amount available. This timing consideration is explored further in the strategies section below.

How to calculate CGT on a rental property disposal

The CGT calculation follows a straightforward formula:

Allowable acquisition costs

These are costs you paid when you originally purchased the property:

• Stamp Duty Land Tax (or Land and Buildings Transaction Tax in Scotland / Land Transaction Tax in Wales)
• Solicitor and conveyancing fees
• Surveyor and valuation fees paid on purchase
• Estate agent fees paid by the buyer (uncommon but allowable)

Allowable disposal costs

These are costs you paid when you sold the property:

• Estate agent commission
• Solicitor and conveyancing fees on sale
• Advertising costs for finding a buyer

Capital improvements

Capital improvements are works that enhance the property beyond its original state — they are deductible from your CGT gain. Routine repairs and maintenance are not; those are Income Tax deductions during the letting period.

Keep receipts for every piece of capital expenditure throughout your ownership period. These can go back decades — a loft conversion in 2008 is still deductible against a gain realised in 2026. Without receipts, HMRC is unlikely to allow the deduction.

Use our free CGT calculator to enter your purchase price, sale price, costs, and improvements and see your estimated CGT liability instantly.

The 60-day HMRC reporting deadline

One of the most important — and most frequently missed — obligations for landlords selling a property is the 60-day reporting deadline. Since 27 October 2021, you must report and pay any CGT owed on a UK residential property disposal within 60 days of legal completion.

This is done through the HMRC ‘CGT on UK Property’ online service, not through your annual Self Assessment return. Even if you normally file Self Assessment, you need to use this separate service for property disposals within 60 days and then also include the disposal in your annual return later.

For a detailed walkthrough of the 60-day process, read our dedicated guide to the 60-day CGT deadline, which covers what information you need, how to create a HMRC Government Gateway account, and what happens if you miss the window.

If you are also registered for Making Tax Digital for Income Tax, note that MTD quarterly submissions cover rental income only — the 60-day CGT return is a completely separate obligation handled outside your MTD software.

Does Section 24 mortgage interest affect CGT?

This is a common point of confusion. The short answer is no. Mortgage interest does not reduce your CGT gain. Section 24 and Capital Gains Tax operate in entirely separate parts of the tax code.

Under Income Tax, you earn rent and pay tax on the profit. Section 24 affects how mortgage interest is treated within that Income Tax calculation — restricting it to a 20% tax credit rather than a full deduction. But when you sell the property, Income Tax stops and CGT begins. CGT cares only about the difference between what you paid for the asset and what you received when you disposed of it.

The amount you borrowed to fund the purchase, how much you have repaid, or the interest you have paid over the years — none of this reduces your CGT gain. A landlord who bought a property for £150,000 with a 75% mortgage and sells for £300,000 has a gross gain of £150,000 regardless of what they paid in interest during ownership.

What you can deduct from the gain are the legal and agency costs of buying and selling, plus any capital improvements — but not mortgage interest, letting agent fees, insurance, or any other revenue expense that goes through your Income Tax calculation.

Private Residence Relief on former homes let as rentals

If a property you are selling was ever your main home — before you started letting it, or after you moved back in — you may be entitled to Private Residence Relief (PRR). PRR exempts the gain attributable to the period of main home occupation from CGT entirely.

The relief is calculated as a fraction of the total gain:

PRR worked example

Lettings Relief: the post-April 2020 rules

Lettings Relief used to be one of the most valuable CGT reliefs available to landlords — up to £40,000 per person for gains realised while a former home was let. From 6 April 2020 the rules changed fundamentally: Lettings Relief is now only available when the owner was in shared occupancy with the tenant.

In practice, this means the landlord must have been living in the property at the same time as the letting arrangement. If you let your property to tenants who had exclusive use — the overwhelming majority of standard buy-to-let arrangements — Lettings Relief does not apply to the post-April 2020 period.

Historic claims for periods before 6 April 2020 may still be available under the old rules if the property was your main home at some point during that earlier period. The calculation in such cases spans two distinct regimes, which makes it complex. If you owned the property before 2020 and lived in it at some point, it is worth reviewing the pre-2020 position with a tax adviser.

Using capital losses to reduce your CGT bill

If you have disposed of any assets at a loss in the current or previous tax years, those losses can reduce the gain on which CGT is charged. Capital losses can arise from any CGT-able asset — shares, other property, business assets — not only from property.

The rules for using losses are:

• Same-year losses must be set against same-year gains before the Annual Exempt Amount is applied.
• Carried-forward losses from earlier years are only set against gains to the extent that the remaining gain exceeds the Annual Exempt Amount. This preserves your AEA.
• You must report losses to HMRC within four years of the end of the tax year in which they arose, even if you have no gains in that year. If you do not report them in time, you cannot use them.
• Losses cannot be transferred between spouses (unlike the no-gain, no-loss transfer on disposals between spouses — that does not create or transfer losses).

If you are planning to sell a property in a year when you also hold shares or funds at a loss, it may be worth realising those losses in the same tax year to reduce your property gain — provided the decision makes commercial sense.

Strategies to manage CGT on a rental property sale

The following strategies are legal planning tools used by landlords and their accountants to reduce or defer CGT. None of them constitutes tax avoidance, and each has legitimate commercial rationale. However, their suitability depends on your specific circumstances — always take qualified advice before acting.

Tax year timing

Legal completion falling on 5 April rather than 6 April makes no practical difference to you commercially, but can mean the difference between using this year's and next year's Annual Exempt Amount. If your gain is large, completing on or after 6 April gives you two sets of allowances — potentially £6,000 exempt between you and a spouse. At 24% CGT, that is £1,440 saved for what amounts to a few days' delay on completion.

Year-end timing also interacts with Income Tax. If your other income in the current year is particularly high, deferring completion to the next tax year — when income may be lower — could shift more of the gain into the basic-rate band at 18% rather than 24%.

Spouse or civil partner transfers

You can transfer a share of the property to a spouse or civil partner at no CGT cost (transfers between spouses living together take place at no gain, no loss). The recipient takes on your acquisition cost for that share. A subsequent sale of both shares uses both partners' Annual Exempt Amounts and potentially splits the gain between two taxpayers — useful if one partner is a basic-rate taxpayer whilst the other is higher rate.

The transfer must be a genuine gift. HMRC will scrutinise arrangements where a property is transferred to a spouse immediately before sale with a pre-arranged obligation to repay the value — these may be challenged as not being genuine transfers.

Document every capital improvement

Every pound of documented capital expenditure reduces your gain by a pound. At 24% CGT, a £10,000 extension that you can evidence with receipts is worth £2,400 off your tax bill. Maintain a dedicated folder — physical or digital — containing invoices for every improvement you make to the property from the day you acquire it.

Use our free CGT calculator before you commit to a sale

Before you agree a sale price with an agent or accept an offer, run the numbers. Our free CGT calculator takes your purchase price, sale price, costs, and improvements and gives you an estimated CGT liability based on your tax band. It also flags the 60-day reporting deadline so you know what to expect after completion.

Frequently asked questions