Capital Gains Tax (CGT)
Capital gains tax (CGT) is a UK tax charged on the profit, known as the chargeable gain, that arises when a person disposes of an asset that has increased in value since acquisition. Under the Taxation of Chargeable Gains Act 1992, a disposal includes not only a sale but also a gift, transfer, or exchange. For landlords, CGT is the primary tax due when a buy-to-let property or other investment property is sold at a profit. It is charged on the gain, not the total sale proceeds.
CGT rates on residential property
For the 2025/26 and 2026/27 tax years, GOV.UK confirms that residential property gains are taxed at two rates:
18% on gains that fall within the individual's unused basic-rate income tax band
24% on gains that exceed the basic-rate band, or where the individual is already a higher or additional-rate taxpayer
These rates apply to gains from buy-to-let and second properties. The rate that applies is determined by adding the chargeable gain (after deducting the annual exempt amount) to the individual's taxable income for the year. Where the combined figure straddles the basic-rate threshold of £37,700 (2026/27), the gain is taxed in two portions at the respective rates.
The annual exempt amount for 2025/26 and 2026/27 is £3,000. Gains up to this threshold in a tax year are free from CGT.
How to calculate the gain
The chargeable gain is calculated as:
Proceeds (sale price or market value on disposal) minus base cost (original purchase price) minus allowable costs.
Allowable costs that can be deducted include:
Purchase costs: stamp duty, legal fees, surveyor fees paid on acquisition
Sale costs: estate agent fees, legal fees paid on disposal
Capital improvements: expenditure that adds to the value of the property and is reflected in its state at disposal, such as extensions, loft conversions, new bathrooms, and structural works. Routine repairs and maintenance do not qualify.
Landlords who keep accurate records of capital improvements throughout ownership, including extensions, loft conversions, and structural works, can reduce a CGT liability when they eventually sell. August's expense tracking keeps a permanent record of qualifying capital costs that may reduce a future CGT bill, including works that were not deductible as revenue expenses in earlier tax years.
From working with self-managing landlords across the UK, we know that improvement records are one of the most commonly incomplete areas of a landlord's financial record-keeping, and the most costly omission when it comes to a property sale.
Private Residence Relief
CGT does not apply to a gain on a property that has been the seller's only or main residence throughout the period of ownership. This exemption is known as Private Residence Relief (PRR). For landlords who previously lived in a property before letting it out, PRR applies proportionally to the period of owner-occupation. In addition, the final nine months of ownership always qualify for PRR regardless of whether the owner was living there, provided the property was the main residence at some point.
This is a significant relief for accidental landlords and those who have let out a former home. The calculation is fact-specific and depends on the exact periods of occupation and letting. PRR does not apply where the property has been let throughout ownership and was never the owner's main home.
The 60-day reporting and payment deadline
Since 27 October 2021, UK residents who sell a residential property and incur a CGT liability must report the disposal and pay the tax due within 60 days of the date of completion. This is separate from and in addition to the annual self-assessment return. The report is made through HMRC's online Capital Gains Tax on UK Property account.
Failure to report within 60 days results in automatic late filing penalties and interest on unpaid tax. Where no CGT is due, because the gain falls within the annual exempt amount or is fully covered by PRR, no report is required within the 60-day window, though the disposal may still need to be disclosed on the self-assessment return.
CGT on a rental property sale is separate from the Stamp Duty Land Tax paid on acquisition, see the SDLT entry for how the additional-property surcharge applies on purchase.
For practical guidance on CGT planning when selling a rental property, including timing disposals across tax years and using spousal transfers, see August's landlord tax guide. Landlords selling an inherited property face additional considerations around probate valuations and base cost, see August's guide to selling an inherited property for the specific rules.
Frequently asked questions
What CGT rate does a basic-rate taxpayer pay on a rental property in 2025/26?
A basic-rate taxpayer pays 18% on any residential property gain that falls within their unused basic-rate income tax band, and 24% on any portion that exceeds it. The applicable band is determined by adding the chargeable gain (after the £3,000 annual exempt amount) to total taxable income for the year.
Can I deduct mortgage interest from a CGT calculation when I sell?
No. Mortgage interest paid during ownership is not an allowable deduction for CGT purposes. It may have been deductible against rental income during the letting period (subject to the Section 24 restriction), but it does not reduce the base cost of the property for CGT.
Does CGT apply if I transfer a property to my spouse?
Transfers between spouses and civil partners who are living together are treated as made on a no-gain, no-loss basis for CGT, meaning no CGT arises on the transfer itself. The receiving spouse inherits the original base cost, so CGT will be calculated on the full gain since original acquisition if the property is subsequently sold.
What happens if I make a loss on a rental property sale?
A capital loss on a rental property can be offset against other capital gains in the same tax year. If losses exceed gains, the remaining loss can be carried forward indefinitely and set against future capital gains, subject to annual reporting requirements. Losses must be claimed, they are not applied automatically.
The information on this page reflects UK tax law as of May 2026, including the rates confirmed by GOV.UK for 2025/26 and 2026/27. It is provided for general guidance only and does not constitute tax advice. Landlords should seek advice from a qualified accountant for their specific circumstances.
