Selling a rental property in the UK means more than simply pocketing the proceeds. Any profit you make above your original purchase cost is potentially subject to Capital Gains Tax (CGT). With rates, allowances, and reporting rules all updated in recent years, understanding your obligations before you sell is essential to avoid unnecessary tax bills and costly penalties.
This guide explains how CGT applies to rental property in the UK, how to calculate your liability accurately, what reliefs are available, and how to report and pay within HMRC’s strict deadlines.
What Is Capital Gains Tax on Rental Property?
Capital Gains Tax is the tax charged on the profit (gain) you make when you sell or dispose of an asset that has increased in value. For rental property, CGT applies to the difference between what you receive on sale and your original acquisition cost, after deducting allowable costs.
It is important to understand that CGT is entirely separate from Income Tax on rental income. You may owe both taxes on the same property at different points: Income Tax each year on your rental profits, and CGT when you eventually sell. The gain, not the sale price, is what is taxed.
CGT applies whenever you sell, gift, or otherwise dispose of a rental property. Gifting a property to a family member, for example, is treated as a disposal at market value for CGT purposes, even if no money changes hands.
CGT Rates on Rental Property in 2025/26
The CGT rates that apply to UK residential rental property for the 2025/26 tax year are:gov+1
| Taxpayer Status | CGT Rate on Residential Property |
|---|---|
| Basic rate taxpayer | 18% |
| Higher or additional rate taxpayer | 24% |
These rates apply to your net taxable gain after deducting the annual exempt amount. If adding your gain to your other income pushes you from the basic rate band into the higher rate band, the portion of the gain falling within the basic rate band is taxed at 18% and the remainder at 24%.
The Annual Exempt Amount
Every individual can make a certain amount of capital gains each tax year before CGT becomes payable. This is known as the Annual Exempt Amount (AEA):
| Tax Year | Annual Exempt Amount |
|---|---|
| 2022/23 | £12,300 |
| 2023/24 | £6,000 |
| 2024/25 | £3,000 |
| 2025/26 | £3,000 |
| 2026/27 | £3,000 |
Married couples and civil partners each have their own allowance, so a jointly owned rental property can benefit from a combined exemption of £6,000 in 2025/26. Unused allowance cannot be carried forward to the next tax year.
How to Calculate Your Capital Gain
CGT is calculated on your net gain, not on the full sale proceeds. The basic formula is:
Capital Gain = Sale Price minus Purchase Price minus Allowable Costs
What Costs Can You Deduct?
Three categories of cost can be deducted from your gain:
Acquisition costs include the original purchase price, Stamp Duty Land Tax paid on purchase, solicitor and conveyancing fees on purchase, and any survey or valuation fees paid when buying.
Disposal costs include estate agent fees, solicitor fees for the sale, and any advertising or Energy Performance Certificate costs incurred specifically for the disposal.
Improvement costs include capital expenditure that genuinely enhanced the value of the property, such as an extension, loft conversion, new kitchen or bathroom installation. Routine repairs and maintenance such as redecorating or replacing a boiler do not qualify, as these merely preserve the property’s condition rather than improving it. Crucially, costs already claimed as an allowable expense against rental income cannot also be deducted from your CGT calculation.
Worked Example
Sarah bought a rental flat for £180,000 in 2016 and sells it for £260,000 in 2025/26. Her allowable costs include Stamp Duty of £1,300, solicitor fees of £3,500, estate agent fees of £3,900, and a new kitchen and bathroom costing £12,000, totalling £20,700 in deductible costs.
Capital Gain: £260,000 minus £180,000 minus £20,700 = £59,300
After deducting the Annual Exempt Amount: £59,300 minus £3,000 = £56,300 taxable gain
If Sarah is a higher rate taxpayer, her CGT bill is £56,300 multiplied by 24% = £13,512.
Private Residence Relief
If the rental property was at some point your main home, you may be entitled to Private Residence Relief (PRR), which can significantly reduce or eliminate your CGT liability.
PRR exempts the proportion of the gain that relates to the period the property was your only or main residence, plus the final 9 months of ownership regardless of how the property was used in that period.
The relief is calculated as follows:
(Months as main residence plus final 9 months) divided by total months of ownership, multiplied by total gain
For example, if you owned a property for 10 years (120 months) and lived in it for the first four years (48 months) before renting it out, your qualifying months would be 48 plus 9 = 57. Dividing 57 by 120 gives an exempt proportion of 47.5%. On a total gain of £80,000, the exempt amount would be £38,000, leaving a taxable gain of £42,000 before the Annual Exempt Amount.
Certain absences may also count as qualifying periods for PRR purposes, provided you lived in the property before and after the absence. These include up to three years for any reason, any period working overseas for an employer, and up to four years working elsewhere in the UK where you could not occupy the property due to employment requirements.
Lettings Relief
Lettings Relief was substantially restricted from April 2020 and is now available only in very limited circumstances. It applies solely where the owner shared occupation of the property with the tenant, meaning you lived in the property at the same time as it was being let. If you moved out entirely and rented the whole property, Lettings Relief does not apply.litrg+1
Where Lettings Relief does apply, the maximum available is the lowest of three figures: the amount of Private Residence Relief, £40,000 per person, or the gain attributable to the letting period. For the majority of landlords selling a property they fully let out, this relief will not reduce the CGT bill.
Strategies to Reduce Your CGT Liability
Several planning strategies can legitimately reduce the CGT you owe when selling rental property:
Offset capital losses. If you have incurred capital losses on other assets, these can be offset against gains from your rental property sale in the same tax year, or carried forward to reduce future gains.
Transfer to a spouse or civil partner. Transfers between married couples and civil partners are treated as occurring on a no gain, no loss basis, with no CGT due at the point of transfer. The receiving spouse can then sell using their own Annual Exempt Amount and potentially pay CGT at a lower rate if they are a basic rate taxpayer.
Time the sale carefully. Selling in a tax year when your income is lower, perhaps following retirement or a career break, can result in a lower CGT rate being applied to all or part of the gain.
Joint ownership. Where a property is jointly owned, each owner has their own Annual Exempt Amount and their own CGT rate based on their individual income, potentially reducing the overall tax bill for couples.
The 60-Day CGT Reporting Rule
This is one of the most important obligations for rental property sellers. When you sell a UK residential property and a CGT liability arises, you must report and pay the CGT due within 60 days of completion. The 60-day clock starts from the completion date, not the date of exchange of contracts
You report through HMRC’s dedicated online UK Property Reporting Service. The disposal must then also be included in your annual Self Assessment tax return, with any CGT already paid through the 60-day return credited against your total liability.
You are not required to file a 60-day return if the gain is fully covered by Private Residence Relief, the Annual Exempt Amount, or brought-forward capital losses, and no tax is payable.
Penalties for Late Reporting
Missing the 60-day deadline triggers automatic penalties from HMRC:
| Delay | Penalty |
|---|---|
| Missed 60-day deadline | £100 fixed penalty |
| More than 6 months late | £300 or 5% of tax due (whichever is greater) |
| More than 12 months late | Additional £300 or 5% of tax due |
Interest also accrues on unpaid CGT from the original 60-day deadline. Given the strict timeline and complexity of the calculation, instructing a specialist property tax accountant before you exchange contracts is strongly advisable.
How UK Property Tax Accountants Can Help
At UK Property Tax Accountants, our specialist team works exclusively in property taxation and has extensive experience helping landlords and investors manage their CGT obligations when selling rental property.
Our services for landlords facing CGT include:
- Calculating your exact CGT liability in advance, so you know your net position before you commit to a sale
- Reviewing all allowable costs and ensuring nothing is missed, including improvement costs from earlier years
- Advising on Private Residence Relief eligibility and the optimal timing of disposals
- Identifying legitimate planning strategies, including spouse transfers and loss offsetting, to reduce your bill
- Preparing and filing the mandatory 60-day CGT report on your behalf, within the deadline
- Ensuring the disposal is correctly reflected in your Self Assessment tax return
- Advising on CGT implications when gifting property or transferring into a limited company
- Representing you in HMRC enquiries if questions arise about a prior disposal
Whether you are selling your first rental property or managing a portfolio of investment assets, our proactive advice ensures your CGT position is managed correctly from the outset. Contact our team today for a no-obligation consultation.
Frequently Asked Questions
Q: Do I pay CGT on every rental property I sell?
Yes. CGT applies to any property that is not your current main residence. Even if it is your only investment property, CGT is due on any gain above the Annual Exempt Amount.
Q: Can I deduct mortgage interest or repayments from my capital gain?
No. Mortgage interest and capital repayments are not allowable costs for CGT purposes. The gain is based on the property’s purchase price, improvement costs, and professional fees only.
Q: My rental property was previously my main home. Do I still pay CGT?
Possibly, but Private Residence Relief will reduce your liability. The exempt proportion covers the period you lived there plus the final 9 months of ownership.
Q: What is the 60-day CGT rule and what happens if I miss it?
When you sell a UK residential property with a CGT liability, you must report and pay within 60 days of completion. Missing the deadline results in an automatic £100 penalty, with further penalties and interest accruing over time.
Q: Does Furnished Holiday Lettings relief still apply when I sell?
No. The FHL regime was abolished from 6 April 2025. Business Asset Disposal Relief no longer applies to short-term let properties, and they are now taxed in the same way as standard residential lets.
