Selling a rental property in the UK can be an exciting moment — especially if you’ve made a good profit. But before you start spending that money, there’s one important cost you need to factor in: Capital Gains Tax (or CGT).
If you’ve owned the property for several years and it’s increased in value, you could owe tens of thousands of pounds in tax to HMRC. And unlike most other taxes, you can’t wait until January to pay it — you have just 60 days from the date of sale to report it and settle your bill.
This guide explains exactly how Capital Gains Tax works when selling rental properties, how much you’ll pay, what you can deduct to reduce your bill, and the critical 60-day reporting deadline you must not miss.
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax you pay on the profit you make when you sell, give away, or otherwise dispose of an asset that has increased in value.
For landlords, this usually applies when you sell a buy-to-let property or a second home for more than you paid for it.
Important: You don’t pay CGT on the full sale price — only on the gain (the profit).
When do you pay Capital Gains Tax on property?
You pay CGT when you:
- Sell a rental property
- Give the property to someone (except your spouse or civil partner)
- Transfer ownership to a company you own
- Swap it for another property or asset
When do you NOT pay Capital Gains Tax?
You don’t pay CGT if:
- The property is your main home and you qualify for Private Residence Relief (more on this below)
- You’re selling to your spouse or civil partner
- You make a loss on the sale (though you can use this loss to offset gains on other properties)
How is Capital Gains Tax Calculated?
The calculation for CGT on a rental property follows a specific formula. Let’s break it down step by step.
Step 1: Work out your gross gain
Sale price minus purchase price = Gross gain
Example:
You bought a rental property for £200,000 in 2015.
You sell it in 2025 for £350,000.
Gross gain: £350,000 – £200,000 = £150,000
Step 2: Deduct allowable costs
You can deduct certain costs from your gross gain to reduce the taxable amount.
Allowable costs include:
- Stamp Duty you paid when you bought the property
- Solicitor and legal fees (both when buying and selling)
- Estate agent fees (when selling)
- Surveyor fees
- Capital improvements (not repairs — see below)
Example (continued):
When you bought the property:
- Stamp Duty: £6,000
- Solicitor fees: £1,500
When you sold the property:
- Estate agent fees: £4,500
- Solicitor fees: £1,200
Capital improvements you made:
- New kitchen: £8,000
- New bathroom: £5,000
Total allowable costs: £6,000 + £1,500 + £4,500 + £1,200 + £8,000 + £5,000 = £26,200
Gross gain: £150,000
Minus allowable costs: £26,200
= Taxable gain (before allowance): £123,800
Step 3: Deduct your annual CGT allowance
Everyone gets a £3,000 tax-free CGT allowance each year (for 2025/26).
This means the first £3,000 of your gain is tax-free.
Example (continued):
Taxable gain: £123,800
Minus CGT allowance: £3,000
= Final taxable gain: £120,800
Step 4: Calculate the tax you owe
The rate you pay depends on your income tax band.
Capital Gains Tax rates for property (2025/26)
| Tax band | CGT rate on property |
| Basic rate (income up to £50,270) | 18% |
| Higher rate (income over £50,270) | 24% |
Important: Your rental property gain is added to your other income for the year to work out which tax band you’re in.
Example (continued):
Let’s say you earn £40,000 from your job.
Job income: £40,000
Plus rental property gain: £120,800
= Total: £160,800
Your income from your job (£40,000) is within the basic rate band (up to £50,270).
But when you add the property gain, your total income exceeds £50,270 — meaning part of your gain is taxed at 18% and part at 24%.
Here’s how it breaks down:
First £10,270 of the gain (£40,000 to £50,270) is taxed at 18% = £1,849
Remaining £110,530 of the gain (£50,270 to £160,800) is taxed at 24% = £26,527
Total CGT owed: £1,849 + £26,527 = £28,376
What Costs Can You Deduct From Your Gain?
Understanding what you can and can’t deduct is critical to reducing your CGT bill.
What you CAN deduct (capital expenses)
Capital expenses are costs that add value to the property or were necessary to buy or sell it.
Examples:
- Stamp Duty you paid when you bought it
- Solicitor and legal fees (buying and selling)
- Estate agent and marketing fees (when selling)
- Surveyor fees
- Capital improvements:
- Adding an extension
- Installing a new kitchen or bathroom
- Converting a loft or garage
- Adding central heating
- Major renovations or structural work
What you CANNOT deduct (revenue expenses)
Revenue expenses are day-to-day costs of owning and maintaining the property.
Examples:
- Repairs and maintenance (fixing a broken boiler, repainting, replacing broken windows)
- Mortgage interest payments
- Landlord insurance
- Council tax or utility bills
- Letting agent fees
- General upkeep (cleaning, gardening, decorating)
Why the distinction matters:
Capital expenses add value to the property, so they reduce CGT when you sell.
Revenue expenses are already deducted from your rental income each year for Income Tax purposes — so you can’t claim them again for CGT.
The key test: Repairs vs improvements
The difference between a repair (revenue expense) and an improvement (capital expense) is crucial.
Repair: Restoring something to its original condition.
Improvement: Making the property better than it was before.
Examples:
| Action | Type | Deductible from CGT? |
| Fixing a broken boiler | Repair | No |
| Installing central heating for the first time | Improvement | Yes |
| Repainting walls | Repair | No |
| Replacing an old kitchen with a new one | Improvement | Yes (if it adds value) |
| Replacing broken tiles | Repair | No |
| Adding an extension | Improvement | Yes |
The £3,000 Annual CGT Allowance
Every individual gets a £3,000 tax-free CGT allowance each year.
This is often called the annual exempt amount.
Can you combine allowances with your spouse?
Yes. If you and your spouse or civil partner jointly own the property, you each get your own £3,000 allowance.
Example:
You and your spouse jointly own a rental property and make a £130,000 gain (after deducting costs).
- Your allowance: £3,000
- Spouse’s allowance: £3,000
- Total tax-free: £6,000
Taxable gain: £130,000 – £6,000 = £124,000
Can you carry over unused allowance?
No. The £3,000 allowance is “use it or lose it” each tax year.
If you don’t use it, it doesn’t roll over to the next year.
Private Residence Relief (PRR): If You Lived in the Property
If you lived in the rental property as your main home at any point, you may qualify for Private Residence Relief (PRR).
This can significantly reduce or even eliminate your CGT bill.
How Private Residence Relief works
PRR exempts part of the gain based on:
- How long you lived in the property as your main home
- The final 9 months of ownership (even if you weren’t living there)
Example: PRR calculation
You owned a property for 10 years.
- Years 1–5: You lived in it as your main home
- Years 6–10: You rented it out
Total ownership: 10 years (120 months)
Months you lived there: 5 years (60 months)
Final 9 months: Automatically exempt (even though you weren’t living there)
Total exempt period: 60 months + 9 months = 69 months
Taxable period: 120 – 69 = 51 months
If your total gain is £100,000, here’s the calculation:
Exempt (PRR): (69 ÷ 120) × £100,000 = £57,500
Taxable: (51 ÷ 120) × £100,000 = £42,500
You only pay CGT on £42,500 (minus your £3,000 allowance).
What counts as your “main home”?
For PRR to apply, the property must be your only or main residence during the time you claim relief.
You can only have one main home at a time. If you own multiple properties, you need to nominate your main residence to HMRC if you want PRR to apply.
The 60-Day Reporting and Payment Deadline
This is critical — and it’s where many landlords get caught out.
You must report and pay CGT within 60 days of completion
If you sell a rental property in the UK and you owe CGT, you must:
- Report the sale to HMRC
- Pay any CGT owed
…within 60 days of the completion date (the date you legally transfer ownership).
How to report and pay
You use HMRC’s UK Property Reporting Service (an online form).
You’ll need:
- Your National Insurance number
- Details of the property (address, sale price, purchase price)
- Details of costs you’re deducting
- Your bank details (for payment)
What happens if you miss the 60-day deadline?
HMRC will charge you:
- Automatic late-filing penalties (starting at £100)
- Interest on any tax you owe
- Further penalties if you’re very late (up to 100% of the tax owed in serious cases)
Even if you don’t owe any tax (because of your allowance or a loss), you still need to report the sale if you’re required to.
Do you still file a Self Assessment?
Yes. Even though you report and pay CGT within 60 days, you still need to include the property sale on your Self Assessment tax return for the tax year.
The 60-day process is an advance payment. The Self Assessment is the final record.
Can You Reduce or Avoid Capital Gains Tax?
There are legitimate ways to reduce your CGT bill.
1. Use your £3,000 annual allowance
Plan the timing of your sale to make sure you use your allowance.
If you’re close to the end of the tax year and you haven’t used it yet, selling before April 5th means you get another £3,000 allowance the next day.
2. Transfer the property to your spouse
If you’re married or in a civil partnership, transfers between spouses are CGT-free.
Example:
You own a rental property that will make a £80,000 gain when sold. You’re a higher-rate taxpayer (24% CGT).
Your spouse doesn’t work and is a basic-rate taxpayer (18% CGT).
If you sell it yourself:
CGT at 24%: £80,000 × 24% = £19,200
If you transfer 50% to your spouse first, then sell:
- Your half: £40,000 × 24% = £9,600
- Spouse’s half: £40,000 × 18% = £7,200
- Total CGT: £16,800
Saving: £2,400
3. Offset losses from other assets
If you’ve made a loss on another asset (like shares or another property), you can offset that loss against the gain on your rental property.
Example:
You made a £100,000 gain on a rental property.
You made a £15,000 loss on shares.
Taxable gain: £100,000 – £15,000 = £85,000
4. Spread sales across tax years
If you own multiple properties, consider selling them in different tax years to use your £3,000 allowance multiple times.
Example:
You own two rental properties, each with a £50,000 gain.
If you sell both in one year:
Total gain: £100,000
Minus one allowance: £3,000
Taxable: £97,000
If you sell one in March and one in April:
Year 1: £50,000 – £3,000 = £47,000 taxable
Year 2: £50,000 – £3,000 = £47,000 taxable
Same total taxable gain, but better cash flow (you spread the payments over two years).
5. Use a limited company
Properties owned by limited companies don’t pay CGT when sold — they pay Corporation Tax instead (currently 19% for most companies, 25% for profits over £250,000).
But — if you transfer a property from personal ownership into a limited company, that triggers CGT (and Stamp Duty).
So this strategy usually only works for new purchases, not existing portfolios.
What If You Make a Loss?
If you sell a rental property for less than you paid for it (after deducting allowable costs), you’ve made a capital loss.
You can’t get a refund for a loss, but you can use it to offset gains on other properties or assets.
How to use capital losses
Example:
- 2024/25: You sell Property A and make a £20,000 loss
- 2025/26: You sell Property B and make a £60,000 gain
You can deduct the £20,000 loss from the £60,000 gain:
Taxable gain: £60,000 – £20,000 = £40,000
Can you carry losses forward?
Yes. Capital losses can be carried forward indefinitely until you use them.
But you must report the loss to HMRC in the year it happens (either via the 60-day reporting service or on your Self Assessment).
Common Capital Gains Tax Mistakes Landlords Make
1. Missing the 60-day deadline
This is the most common mistake. Many landlords assume they can wait until January (Self Assessment deadline) to deal with CGT. You can’t.
If you sell in June, your CGT is due by August — not the following January.
2. Claiming repairs as capital expenses
Repairs (fixing broken things) don’t reduce CGT. Only improvements (adding value) do.
Many landlords incorrectly add their annual repair bills to their CGT calculation.
3. Forgetting to claim PRR
If you lived in the property at any point, you’re entitled to Private Residence Relief — but you have to claim it. HMRC won’t automatically apply it.
4. Not using the spouse transfer strategy
If one spouse is in a lower tax band, transferring property to them before selling can save thousands in CGT.
5. Not keeping records
You need proof of all the costs you’re claiming (Stamp Duty, legal fees, improvements). If you can’t provide receipts, HMRC won’t allow the deduction.
Final Thoughts
Capital Gains Tax on rental properties can be expensive — but it’s manageable if you understand the rules.
Here’s the short version:
- You pay 18% or 24% CGT on the profit when you sell (depending on your income)
- You can deduct costs like Stamp Duty, legal fees, and capital improvements
- You get a £3,000 tax-free allowance each year
- If you lived in the property, you may get Private Residence Relief
- You must report and pay within 60 days of completion
- There are legitimate ways to reduce your bill (spouse transfer, offsetting losses, timing sales)
Before you sell, make sure you’ve:
- Calculated your likely CGT bill
- Gathered all your receipts and records
- Considered whether PRR applies
- Thought about timing (to use your annual allowance)
And if you’re not confident handling this yourself — especially if the numbers are large — get professional help.
At Applegrow Financial Advisors, we help landlords with CGT calculations, reporting to HMRC, and tax planning strategies to legally reduce what you owe.
Whether you’re selling one property or restructuring your entire portfolio, we’ll make sure you’re compliant and not paying a penny more than necessary.
Get in touch and let us help you navigate Capital Gains Tax.
Need Help With Capital Gains Tax?
Whether you’re about to sell a rental property or planning ahead, we can help you calculate your CGT liability and explore ways to reduce it legally.
Contact us today to find out how we can help.
