Capital gains tax for landlords: what you pay when you sell, and how to reduce it

Capital gains tax is the tax a landlord pays on the profit when they sell or otherwise dispose of a rental property that has risen in value. For many landlords it is the single largest tax event of their letting career, and it is also one of the most misunderstood, because the rate you pay, the reliefs you can claim and the deadline to report all depend on details that are easy to get wrong. This guide explains what you actually pay in the 2026/27 tax year, how private residence relief and lettings relief apply, the 60-day reporting rule that catches landlords out, and the legitimate steps that keep a bill as low as the rules allow.

What capital gains tax is and when it applies

Capital gains tax, or CGT, is charged on the gain you make when you dispose of an asset that has gone up in value, and HMRC sets out the basic framework on gov.uk. For property, a disposal usually means a sale, but it also covers gifting the property to someone other than your spouse, or transferring it into a company. The tax falls on the gain, not the sale price.

Buy a buy-to-let flat for £200,000 and sell it for £340,000 a decade later, and your gross gain is £140,000. You pay CGT on that £140,000 of growth, not on the £340,000. From the gain you then subtract allowable costs, apply any reliefs you qualify for, and use your annual exempt amount before tax is worked out on what remains. CGT does not touch your rental income, which is charged to income tax through Self Assessment each year. CGT is a separate charge that arises only on disposal.

The rates and allowance for 2026/27

For residential property, HMRC applies two rates that depend on where your total income sits relative to the basic rate band, and the current rates are published on gov.uk:

• Basic rate taxpayers pay 18% on taxable gains that fall within the remaining basic rate band.

• Higher and additional rate taxpayers pay 24% on taxable gains.

If a gain straddles the threshold, you pay 18% on the portion that fits within the basic rate band and 24% on the rest. The rate is set by adding your taxable gain to your other income for the year, which is exactly why timing a sale can change the bill. These rates have held since the higher residential rate was cut from 28% to 24% in April 2024, and they remain in place for 2026/27.

The annual exempt amount for 2026/27 is £3,000 per person, confirmed by HMRC, down from £6,000 in 2024/25 and £12,300 in 2022/23. A property owned jointly with a spouse or civil partner gives each owner their own exempt amount, so a couple shelters a combined £6,000. The allowance cannot be carried forward; if you do not use it in the year of disposal, it is gone.

What you can deduct from your gain

Before any relief, you can reduce the gross gain by deducting certain costs, which HMRC groups into three categories. Acquisition costs include the original purchase price, conveyancing fees on purchase, the Stamp Duty Land Tax you paid at acquisition, and survey or valuation fees tied to the purchase. Enhancement expenditure covers capital improvements made during ownership, such as a loft conversion, an extension or a genuinely new kitchen, but not routine repairs or like-for-like replacements, however expensive they felt at the time. Disposal costs include estate agent fees, conveyancing on the sale, and the cost of advertising the property.

Record-keeping matters more here than anywhere else in a landlord’s tax affairs. Invoices and completion statements from years, sometimes decades, ago can take real money off the bill. Among the landlords we work with on August, the most common avoidable CGT cost is not a missed relief but a lost invoice: an extension or a new bathroom that genuinely improved the property, with no paperwork left to prove it. Keeping the purchase statement and every improvement invoice in one place from the outset is what makes those deductions defensible. August’s document storage is built for exactly this kind of long-horizon record, so the evidence is there when you finally come to sell.

Private residence relief: the relief landlords most often overlook

Private residence relief exempts all or part of a gain where the property was at some point your main home, and for landlords who once lived in a property before letting it, the relief can be substantial. It works by time apportionment. Own a property for fifteen years, live in it as your main home for five and let it for ten, and five fifteenths, a third, of the gain is exempt.

The final nine months of ownership always qualify automatically, provided the property was genuinely your main home at some point, even if you moved out well before completion. That terminal window was eighteen months until 6 April 2020, when it was halved. HMRC expects evidence of real occupation rather than a registered address, so utility bills, GP and electoral registration and bank correspondence will be looked for if a claim is questioned. The detail sits in HMRC’s helpsheet HS283.

How lettings relief works now

Lettings relief is the relief most often misunderstood, because it was sharply narrowed from 6 April 2020. Before that date it could be claimed whenever a former main residence was later let in full, and it was worth up to £40,000 per owner, or £80,000 on a jointly owned property, sheltering a large slice of gain for accidental landlords.

Since April 2020 it is far more restrictive. Lettings relief now applies only where you shared occupancy with your tenant at the time of letting, which in practice means live-in landlords who took in a lodger while still living in the property as their own main home. If you moved out entirely and then let the property, lettings relief no longer applies to that letting period, however long you had lived there before. Where it does apply, HMRC calculates it as the lowest of three figures: £40,000 per owner, the amount of private residence relief already given, or the gain remaining after private residence relief. Because private residence relief is applied first, lettings relief only works on whatever gain is left; if the main-residence relief covers everything, lettings relief has nothing to do. For most landlords selling a standalone buy-to-let that was never their home, neither relief applies, and the full gain after costs and the annual exempt amount is taxable.

Worked example: selling a former home you later let

Suppose you bought a flat in 2010 for £220,000, lived in it until 2016, then moved out and let it, and sell it in 2026 for £400,000. The gross gain is £180,000. You spent £15,000 on a kitchen extension in 2014 and £2,500 in conveyancing on each of the purchase and the sale, so allowable costs of £20,000 reduce the gain to £160,000.

Your ownership ran sixteen years. You lived there for six, and the final nine months count automatically, so private residence relief covers 6.75 of sixteen years, about 42.2%. That shelters £160,000 multiplied by 42.2%, or £67,520, leaving £92,480. If you never shared occupancy with a tenant, lettings relief does not apply. Subtract the £3,000 annual exempt amount and you have a taxable gain of £89,480; at the 24% higher rate that is roughly £21,475. A basic rate taxpayer, or a gain that fell partly within the basic rate band, would pay less, which is the whole reason timing a sale to a lower-income year can matter.

The 60-day reporting and payment rule

When you sell a UK residential property and CGT is due, you must report the gain and pay the tax within 60 days of completion through HMRC’s Capital Gains Tax on UK property service. This is a standalone obligation set out on gov.uk, separate from and on top of your annual Self Assessment return. The window was 30 days before 27 October 2021 and is now 60.

Miss the deadline and HMRC issues an automatic £100 penalty, with further penalties after six months and interest running on the unpaid tax throughout. It is an easy deadline to lose in the busy weeks after a sale, so set a reminder the moment you exchange and brief your accountant early. Even where you expect reliefs to cover the whole gain, check whether you still need to report; non-residents must file regardless of whether tax is due, and if there is any doubt it is safer to report.

How to reduce a CGT bill legitimately

None of the following is a loophole; each is the product of deliberate tax rules or sensible planning.

The most powerful lever for couples is the inter-spouse transfer. Transfers between spouses or civil partners who live together are treated as "no gain, no loss", so moving a share of a property to your partner before a sale, recorded in a declaration of trust, triggers no CGT on the transfer itself, and, as gov.uk explains, lets a later sale use both annual exempt amounts and both basic rate bands. On a jointly held property that means £6,000 of gain tax-free and more of the gain taxed at 18% rather than 24%.

Beyond that, time the sale where you can: completing in a year of lower income, or in the same tax year as crystallised capital losses, keeps more of the gain out of the 24% band, and because the tax year ends on 5 April, a completion in late April rather than late March can shift a whole gain into more favourable circumstances. If you are selling several properties, spreading the disposals across more than one tax year multiplies that effect, and our guide to selling a property portfolio works through how to phase a portfolio exit. Carry losses forward, because capital losses on other assets such as shares can be set against a property gain and do not expire. Go back through the whole ownership period and find every improvement invoice, since each genuine capital improvement reduces the gain. And take advice before you exchange, not after, because once contracts are exchanged you are committed and the planning options close; an adviser’s fee is itself a disposal cost.

Selling, holding, and inherited property

CGT is one input into the larger question of whether to sell at all. Our guide to selling a rental property works through the sell-or-hold decision in full, of which the tax bill is only one part.

Inherited property follows different mechanics. You generally acquire it at its market value at the date of death, so the gain that matters for your CGT is the growth from that probate value to your eventual sale price, not from what the deceased originally paid. The property may also have been subject to inheritance tax in the estate, a separate charge from the CGT you pay on a later disposal. Our guide to selling an inherited property covers how the two interact.

What about a limited company?

Some landlords hold property through a limited company, in which case corporate rules apply rather than personal CGT. A company pays corporation tax on a gain, currently 25% on profits above £250,000 and 19% under the small profits threshold of £50,000, with marginal relief in between, and it has no annual exempt amount. Moving a personally held property into a company is itself a disposal, so it triggers personal CGT and a Stamp Duty Land Tax charge on the company, which is why incorporating an existing portfolio is rarely worthwhile unless the long-term arithmetic clearly supports it. You can model the stamp duty side of that move with the August stamp duty calculator, but the decision as a whole needs individual professional analysis.

Keeping records throughout ownership

The most effective CGT planning starts on the day you buy, not the day you decide to sell. From the outset, keep the purchase completion statement, every improvement invoice and every receipted disposal cost, and separate capital expenditure from routine repairs as you go rather than untangling years of mixed records later. Landlords who run their lettings on August tend to find the disposal far less stressful for this reason: the costs that reduce the gain are already logged against the property rather than scattered across old bank statements. August’s expense tracking keeps that record clean year by year, and our broader guide to tax on rental income puts CGT in the context of your wider obligations.

This matters more now that record-keeping is becoming mandatory for many landlords. Making Tax Digital for Income Tax has applied since April 2026 to landlords with qualifying income above £50,000, changing the rhythm of how income and expenses are recorded and reported. Compliance costs such as gas safety and electrical certificate renewals are not capital improvements and do not reduce a CGT bill, but they are deductible against rental income, so clean records cut your tax both year by year and at the point of sale.

Frequently asked questions

How much capital gains tax do landlords pay when selling? 

Residential property gains are taxed at 18% within your remaining basic rate band and 24% above it, after deducting allowable costs and the £3,000 annual exempt amount. The split depends on your total income for the year, because the gain is stacked on top of it, so the same gain can produce a different bill in different years.

How can I reduce capital gains tax on a rental property? 

Use both partners’ annual exempt amounts on a jointly owned property, transfer a share to a spouse before sale, time completion to a lower-income tax year, set capital losses against the gain, and claim every allowable cost and capital improvement. Each is legitimate, and the time to plan is before you exchange contracts.

Do I pay CGT when transferring a property to my spouse? 

No. Transfers between spouses or civil partners who live together are treated as no gain, no loss, so no CGT arises on the transfer. The receiving partner takes on the original base cost, and the benefit comes later, when a sale can use both allowances and both basic rate bands.

Do I still have to report if reliefs cover the whole gain? 

If no CGT is due because reliefs or the annual exempt amount cover the gain, a UK resident generally does not need to file the 60-day return, though non-residents must report any disposal regardless. Where there is any doubt about whether tax is due, report within 60 days to be safe. If you would like your purchase and improvement records in one place before that day comes, you can start for free on August.

A note on the tax landscape

The rates and rules here reflect the 2026/27 tax year. CGT has changed sharply in recent years: the higher residential rate was 28% as recently as 2023/24, the annual exempt amount was £12,300 in 2022/23 before falling to £3,000, and lettings relief was far broader before April 2020. The direction has been towards higher tax and narrower reliefs, and future Budgets may bring more change, so check the current position before you act.

This article is a guide and does not constitute tax advice. The right approach depends on your income, the history of the property, your ownership structure and other factors. Always work with a qualified tax adviser or accountant before making significant decisions around a property disposal. Accurate at the time of writing in 2026.