Articles
Capital gains tax for landlords: what you actually pay
March 3, 2026
Selling a rental property after years of letting can feel like a reward for patience and hard work. Then the capital gains tax bill arrives, and the mood shifts. For many landlords, CGT is the largest single tax event they will ever face, yet it remains surprisingly misunderstood. This guide cuts through the confusion, explains exactly what you pay, how lettings relief and private residence relief apply, and what you can do before, during and after ownership to keep your liability as low as legitimately possible.
What capital gains tax actually is
Capital gains tax is a tax on the profit you make when you dispose of an asset that has gone up in value. In the context of property, disposal usually means a sale, but it can also include gifting a property or transferring it to a company. The tax is charged on the gain, not the sale price.
If you buy a buy-to-let flat for £200,000 and sell it for £340,000 ten years later, your gross gain is £140,000. You do not pay CGT on the full £340,000, only on the £140,000 of growth. From that figure, you can subtract allowable costs, apply any reliefs you qualify for, and use your annual exempt amount before tax is calculated on whatever remains.
CGT does not affect your rental income. That is subject to income tax through Self-Assessment each year. CGT is a separate charge that arises only when you sell or otherwise dispose of the property.
The rates for 2025/26
For residential property, HMRC applies two rates depending on where your total income for the tax year falls relative to the basic rate band:
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.
Note that if a gain pushes you from one band into the other, you pay 18% on the portion that fits within the basic rate band and 24% on the remainder. The rate that applies is determined by adding your taxable gain to your other income for the year, which is one reason timing a sale carefully can make a real difference.
The annual exempt amount for 2025/26 is £3,000 per individual (down from £6,000 in 2023/24 and £12,300 in 2021/22). For a property owned jointly with a spouse or civil partner, each partner has their own exempt amount, giving you a combined allowance of £6,000. Every pound of gain below that threshold is tax-free.
What you can deduct from your gain
Before you apply any reliefs or exemptions, you are entitled to reduce your gross gain by deducting certain costs. HMRC allows three categories.
Acquisition costs include the original purchase price, solicitor and conveyancer fees on purchase, Stamp Duty Land Tax paid at acquisition, and survey or valuation fees connected with the purchase.
See our Stamp Duty Calculator
Enhancement expenditure covers capital improvements you made during ownership. A loft conversion, an extension, a new kitchen that was a genuine improvement rather than a like-for-like replacement. Routine maintenance and repairs, however, do not qualify as capital improvements for CGT purposes, even if they felt substantial at the time. If you are uncertain about a specific cost, keep all your invoices and seek advice; the line between a repair and an improvement can be finer than it looks.
Disposal costs include estate agent fees, solicitor fees on the sale, and any costs of advertising the property for sale.
Record-keeping matters enormously here. Invoices and completion statements from years or even decades ago can meaningfully reduce your bill, so a tidy document archive, whether paper or digital, pays dividends when you come to sell. August is built around keeping all your property documents in one place precisely because needs like this arise.
Private Residence Relief: the relief most landlords overlook
Private Residence Relief (PRR) exempts all or part of a gain from CGT where the property was at some point your main home. For landlords who moved out and began letting a property they once lived in, this can be highly valuable.
The relief works on a time-apportionment basis. If you owned a property for fifteen years, lived in it as your main residence for five of those years, and rented it out for the remaining ten, five-fifteenths (one-third) of the gain would qualify for PRR and be exempt from CGT.
There is an important addition. The final nine months of ownership always qualify for PRR automatically, provided the property was your main home at some point during ownership. Even if you moved out nine or more months before completion, that terminal period is still covered. This nine-month window was eighteen months until 6 April 2020; it was halved by HMRC as part of a broader tightening of the relief.
HMRC requires genuine occupancy as your main home, not simply registering an address. Evidence of actual habitation, such as utility bills, GP registration, voter registration and bank correspondence, will be expected if your claim is questioned.
How lettings relief works now
Lettings relief is the relief most frequently misunderstood by landlords, partly because it was significantly tightened from 6 April 2020.
Before that date, lettings relief could be claimed whenever a property that had been your main residence was later let in its entirety. It was worth up to £40,000 per owner (£80,000 for a jointly owned property) and sheltered a great deal of gain for accidental landlords and those who moved out and let their former home.
Since 6 April 2020, the rules are substantially more restrictive. Lettings relief is now only available where you were in shared occupancy with your tenant at the time of letting. In practice, this means the relief now applies primarily to live-in landlords, sometimes described as resident landlords, who took in lodgers while continuing to occupy the property as their main home themselves.
If you moved out of your property entirely and then let it, even if you had previously lived there for many years, lettings relief no longer applies to the post-April 2020 letting period.
Where lettings relief does apply, HMRC calculates it as the lowest of three figures:
£40,000 per owner.
The amount of PRR already claimed.
The remaining chargeable gain after PRR.
Because PRR is applied first, lettings relief can only tackle whatever gain remains after PRR has done its work. If PRR covers the entire gain, lettings relief has nothing to do.
The practical upshot for most landlords who own a standalone buy-to-let that was never their main home is straightforward: neither PRR nor lettings relief will apply, and the full gain (after allowable 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. You lived in it until 2016 (six years), then moved out and let it. You sell it in 2026 for £400,000, making a gross gain of £180,000 before costs.
You spent £15,000 on a kitchen extension in 2014 and paid £2,500 in solicitor fees on each of the purchase and sale. Your allowable costs total £20,000, reducing your gain to £160,000.
Your period of ownership is sixteen years (2010 to 2026). You lived there for six years and the final nine months (0.75 of a year) count automatically. So PRR covers 6.75 of your 16 years of ownership, which is 42.2%. PRR therefore shelters £160,000 × 42.2% = £67,520. The gain remaining after PRR is £92,480.
If you were in residence with your tenants at any point, lettings relief might apply; if not, it will not. Either way, subtract your annual exempt amount of £3,000, leaving a taxable gain of £89,480 at most. At 24% (higher rate), you would owe approximately £21,475.
Were you a basic rate taxpayer or the gain fell partly within the basic rate band, the liability would be lower. This is why timing a sale to coincide with a year of lower income, for example after retirement or during a career break, can produce a meaningful tax saving.
The 60-day reporting rule
This rule catches many landlords off guard. When you sell a UK residential property and a CGT liability arises, you must report the gain and pay the tax within 60 days of the completion date, using HMRC's UK Property Disposal service. This is separate from and in addition to your annual Self-Assessment tax return.
Missing the 60-day deadline triggers an automatic £100 penalty, with further daily penalties accruing after six months. HMRC will also charge interest on late payments. Given how easy it is to miss a deadline in the weeks after completing a property sale, set a calendar reminder the moment you exchange contracts and speak to your accountant without delay.
Even if you believe no tax is due, because you expect reliefs to cover the full gain, you may still need to report. If there is any doubt, report anyway.
Planning strategies for landlords
There are a number of legitimate ways to reduce a CGT liability. None of them is a loophole; all are the product of deliberate tax policy or sensible financial planning.
Use both annual exempt amounts - If a property is jointly owned with a spouse or civil partner, both partners' £3,000 allowances are available. Structuring ownership to make the most of both allowances before a sale can save up to £1,440 per year at the higher rate.
Time your sale carefully - Selling in a year when your other income is lower reduces your exposure to the 24% rate. If you can arrange completion after a period of reduced employment income, during the same tax year you have other capital losses to offset, or after you have taken early retirement, the saving can be significant. The tax year runs from 6 April to 5 April, so a completion date of late April versus late March may move an entire year's gain into more favourable circumstances.
Carry losses forward - Capital losses on other assets (shares, for instance) can be offset against your property gain. Losses do not expire and carry forward indefinitely, so keep records of any previous capital losses you have crystallised.
Maximise allowable deductions - It is worth going back through the full period of ownership and locating every invoice for capital improvements. A conservatory added fifteen years ago, a garage conversion, a new bathroom that genuinely improved rather than replaced like-for-like. All of these can reduce your taxable gain. Keep your receipts and completion statements permanently.
Consider the timing relative to Making Tax Digital for landords - From April 2026, landlords with qualifying income above £50,000 will need to comply with Making Tax Digital for Income Tax. This changes the administrative rhythm around your tax affairs, which is another reason to ensure your records are clean before a disposal.
Take professional advice before exchanging - Once you have exchanged contracts, you are committed. The best time to explore all available reliefs, consider whether joint ownership adjustments make sense, and review allowable costs is before you market the property. A tax adviser's fee is itself a disposal cost.
What about a limited company?
Some landlords form a limited company to hold property, in which case corporate tax rules apply rather than CGT. Companies pay corporation tax (currently 25% for profits above £250,000, or 19% for smaller companies under the small profits rate) on gains from property disposals, without access to the CGT annual exempt amount. Transferring a personally-held property into a company triggers CGT at the personal level as well as Stamp Duty Land Tax, making incorporation an expensive move for an existing portfolio unless the long-term arithmetic firmly supports it. The question of whether to incorporate is a significant one for any property portfolio, and its complexity is beyond the scope of this article: it requires a detailed, individual analysis.
Keeping records throughout the tenancy
The most effective CGT planning begins not when you decide to sell, but when you buy. From day one, file every invoice for improvement work, your original purchase completion statement, and every receipted cost. During the tenancy, separate capital expenditure from routine repairs in your expense records. August's document management is designed precisely for this kind of long-term record-keeping, ensuring that when you come to sell, your costs are documented and your claim is as strong as it can be.
It is also worth reviewing your position against the landlord compliance checklist annually. Compliance costs, such as gas safety certificate renewals, EICR fees and licensing, are not capital improvements and do not reduce your CGT bill directly, but they are deductible against rental income, which reduces the income tax you pay year by year.
A note on the tax landscape
The CGT rates and rules described here reflect the position for the 2025/26 tax year. Rates and allowances have changed significantly in recent years: the higher rate on residential property was 28% as recently as 2023/24, the annual exempt amount was £12,300 in 2021/22, and lettings relief was much broader before April 2020. The direction of travel has generally been towards higher tax and narrower reliefs, and future Budgets may bring further change.
The information in this article is a guide. It does not constitute tax advice, and the right approach for your circumstances will depend 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. That said, understanding the framework puts you in a far better position to have those conversations, ask the right questions and plan meaningfully well ahead of a sale.
Disclaimer: This article is a guide and not intended to be relied upon as legal or professional advice, or as a substitute for it. August does not accept any liability for any errors, omissions or misstatements contained in this article. Every effort was made to be accurate at the time of writing. Always speak to a suitably qualified professional if you require specific advice or information.
Author
August Team
The August editorial team lives and breathes rental property. They work closely with a panel of experienced landlords and industry partners across the UK, turning real-world portfolio and tenancy experience into clear, practical guidance for small landlords.
