Capital Gains Tax on Buy-to-Let and Rental Property: Complete UK Guide

If you’re a landlord thinking about selling a rental property, or you’ve recently sold one, Capital Gains Tax (CGT) is probably the single biggest unknown in your numbers. The good news is that the rules, while detailed, follow a fairly logical structure once you break them down.

It pays to be organised but first, you’ll need to work out the gain on your property sale, then check what reliefs and allowances may be available, and finally report the details and pay any tax due to HMRC within the required timeframe. This guide walks through what CGT on rental property actually means, when it applies, how the current rates and allowances work, which reliefs might reduce your bill, and the reporting deadline that catches out more landlords than almost any other part of the process. (Capital Gains Tax: what you pay it on, rates and allowances, 2026)

What capital gains tax on rental property means

Capital Gains Tax is the tax you pay on the profit you make when you sell or otherwise dispose of an asset that has increased in value — not on the sale price itself. For a landlord, the “asset” is usually a buy-to-let flat or house, and the “ga (Capital Gains Tax: what you pay it on, rates and allowances, 2026)in” is broadly the difference between what you paid for it (plus certain costs) and what you sell it for.

This distinction matters more than it might seem. A property that sells for £350,000 might trigger a tax bill based on a £40,000 gain, or a £150,000 gain, depending entirely on the original purchase price and what’s been spent on it since. CGT is never calculated on the full proceeds of a sale.

It’s also worth being clear about terminology, because “rental property,” “second home,” and “main residence” get used loosely, and the tax treatment differs sharply between them:

• Main residence — the home you actually live in. This usually qualifies for Private Residence Relief (PRR), which can wipe out the CGT bill entirely.
• Rental property / buy-to-let — a property let to tenants that you don’t live in. This is fully within the scope of CGT and is not subject to automatic relief.
  Second home — a property you own in addition to your main home, whether it’s let out, used occasionally, or left empty. HMRC treats this the same way as a buy-to-let for CGT purposes if you don’t live in it as your main home.
• Second home — a property you own in addition to your main home, whether it’s let out, used occasionally, or left empty. HMRC treats this the same way as a buy-to-let for CGT purposes if you don’t live in it as your main home.

The common thread: if you haven’t lived in a property as your only or main home throughout your ownership of it, some or all of the gain is likely to be taxable.

When landlords pay CGT

CGT isn’t only triggered by an open-market sale. It can apply whenever you “dispose of” a residential property, which includes:

• • Selling a buy-to-let on the open market — the most straightforward and common trigger.
  • Gifting or transferring a property, where the transfer isn’t covered by the spouse or civil partner exemption. Even if no money changes hands, HMRC treats the disposal as happening at market value.

• Transferring to children or other connected parties. Because these aren’t arm’s-length transactions, HMRC substitutes the property’s market value for the actual price paid (or not paid) — so gifting a property to a son or daughter for £1 doesn’t avoid CGT; the gain is calculated as though it sold for full market value.
• Selling a property you once lived in but later let out. This is one of the most common scenarios for “accidental landlords.” Some relief is usually available for the period you lived there, but the letting period is generally taxable (see Special Cases below)

Transfers between spouses or civil partners who are living together are generally CGT-free, regardless of how the property is used. This is a useful planning tool covered later in this guide.

Current CGT rates on residential property

For the 2026/27 tax year (6 April 2026 to 5 April 2027), CGT on UK residential property — which includes buy-to-let properties, second homes, and inherited residential property — is charged at two rates depending on your income:

These rates have remained unchanged since 6 April 2024, and the rates for the 2026/27 tax year are the same as the previous year.

Here’s the part that trips a lot of people up: your rate isn’t simply “basic” or “higher” based on your salary alone. HMRC adds your taxable gain on top of your taxable income for the year, and works out where that combined figure sits relative to the basic rate band (£37,700 for 2026/27, on top of the personal allowance). Whatever portion of the gain falls within the remaining basic rate band is taxed at 18 percent; everything above it is taxed at 24 percent. (Capital Gains Tax: what you pay it on, rates and allowances, 2026)

Take for example someone who has total taxable income for the year of £32,000, and makes a capital gain of £25,000 when they sell their property. The basic rate band is £37,700, so they have £5,700 of this band left after their income (£37,700 minus £32,000). The first £5,700 of their gain is taxed at 18 percent, and the remaining £19,300 (£25,000 minus £5,700) is taxed at 24 percent. This calculation shows exactly how their income and gain interact to determine your final tax bill.

That means the same gain can produce a very different tax bill depending on what else you earned that year, which is precisely why timing a disposal can be a meaningful planning lever (more on that below).

If a property is held inside a limited company rather than owned personally, the rules are different again: companies don’t pay CGT on disposals — they pay Corporation Tax on the gain instead, and don’t have access to the individual annual exempt amount.

Allowances and reliefs

Annual exempt amount

Every individual gets a tax-free allowance for capital gains each year, called the Annual Exempt Amount (AEA). For 2026/27, this is £3,000 per person. It’s been reduced sharply in recent years — down from £12,300 in 2022/23 and £6,000 in 2023/24 — and is now frozen at £3,000.
A few practical points:

• The allowance cannot be carried forward. If you don’t use it, it’s lost for that tax year.
• Married couples and civil partners each have their own £3,000 allowance, giving a combined £6,000 if a property is jointly owned and both partners are disposing of their share.
• It applies after deducting allowable costs from your gain, not before.

Private Residence Relief (PRR)

PRR exempts the gain on a property that has been your only or main home for the whole period you owned it. If that’s the case, the entire gain is typically tax-free, and there’s nothing to report.

Where it gets more involved is when a property was your main home for part of your ownership and a rental property (or simply empty) for the rest — the classic “accidental landlord” situation. In that case, PRR applies proportionally: it shelters the fraction of the gain that corresponds to the time you actually lived there, plus an automatic extra allowance for the final nine months of ownership, even if you’d already moved out and the property was being let during that period.

Letting Relief

Letting Relief is widely misunderstood because the rules changed substantially in April 2020, and much of the older information online still describes the pre-2020 version.
Before 6 April 2020, Letting Relief could be claimed by anyone who had lived in a property as their main home and then let it out in full afterwards. It was worth up to £40,000 per owner (£80,000 for a jointly owned property) and could shelter a significant slice of gain.

Since 6 April 2020, the relief is much narrower. It now only applies where you were in shared occupancy with your tenant — in other words, where you continued living in the property as your main home while also taking in a lodger or sub-letting a room. If you moved out entirely and let the whole property to tenants, Letting Relief does not apply to that period, no matter how long you’d lived there before moving out.
In practice, this means most landlords selling a standalone buy-to-let that was never their main home get no benefit from Letting Relief at all — PRR and Letting Relief are largely relevant only to people who lived in the property at some point, and increasingly only to live-in landlords with lodgers.

Spouse transfers before sale

Because transfers between spouses and civil partners are CGT-free, transferring part or full ownership of a property to a spouse before a sale is a well-established way to access a second £3,000 annual exempt amount and potentially make use of a spouse’s unused basic rate band — particularly valuable where one partner is a higher earner, and the other isn’t. This needs to happen before contracts are exchanged, and is worth discussing with an adviser given the legal and practical implications of changing ownership.

Improvement costs versus repairs

This distinction has a real impact on your gain calculation, and it’s one of the most common areas where landlords either overclaim or miss a legitimate deduction:

• Capital improvements — costs that improve or add to the property (an extension, a loft conversion, replacing a kitchen with a better one, adding double glazing where there was none) — are deductible against your gain
• Repairs and maintenance — costs that simply restore the property to its previous condition (fixing a broken boiler, repainting, replacing a few roof tiles) — are not deductible against CGT. These are typically claimed against rental income instead, as an expense in your annual accounts.

Apart from a legal requirement to keep records for a minimum of 6 years, keeping detailed records makes it much easier to substantiate your claim years later when you come to sell. The most important documents to keep are:
– Proof of expenditure so it is important to retain invoices and receipts for all improvement works (extensions, renovations, upgrades)
– Contracts detailing any major building or improvement work
– Proof of payment, such as bank statements or payment confirmations
– Completion certificates, warranties, or guarantees for works done (such as electrical or gas installations)
– Solicitor’s completion statements list the full cost of a property plus associated buying costs such as stamp duty, legal fees and estate agent fees for both the purchase and sale
– Estate agent statements and invoices

Keeping these records organised and accessible will help you when it comes time to calculate your gain and satisfy HMRC’s reporting requirements.

How to calculate capital gains on buy-to-let

The basic calculation is:

Sale proceeds Less:-
− Selling costs (estate agent fees, legal fees)
− Purchase price
− Buying costs (SDLT, legal fees)
− Qualifying capital improvement costs
= Net gain

From the gross gain, you then deduct any available reliefs (such as PRR, if part of the property’s history qualifies) and your £3,000 annual exempt amount, to arrive at the taxable gain. CGT is then charged on that taxable gain at 18% and/or 24%, depending on your income for the year.

Worked example 1: Straightforward buy-to-let, no PRR

Sarah bought a flat in 2014 for £180,000, paying £5,000 in associated costs. She never lived in it — it was let out from day one. She spent £20,000 on a loft conversion in 2018. In 2026, she sells it for £310,000, paying £6,500 in selling costs. Sarah’s other taxable income for the year is £60,000 (already a higher-rate taxpayer).

• Her Sale proceeds are : £310,000 − £6,500 = £303,500
• Less purchase price and costs: £180,000 + £5,000 = £185,000
• Less improvement costs: £20,000
• Net gain: £98,500
• Less annual exempt amount: £3,000
• Taxable gain: £95,500

Sarah is a higher rate taxpayer so the entire taxable gain is charged at 24%: £95,500 × 24% = £22,920 CGT due.

Worked example 2: Former home, later let (PRR applies)

James bought a flat in 2010 for £220,000. He lived in it as his main home until 2016 (six years), then moved out and let it to tenants. He sold it in 2026 for £400,000. He spent £15,000 on a kitchen extension in 2014, and paid £2,500 in solicitor’s fees on both the purchase and the sale.

• Sale proceeds: £400,000
• Less purchase price: £220,000
• Less improvement and legal costs: £15,000 + £2,500 + £2,500 = £20,000
• Gross gain: £160,000

Total ownership period: 16 years (2010–2026). James lived there for 6 years, and the final 9 months of ownership (0.75 years) count automatically under Principle Residence Relief rules, even though he wasn’t living there at the end of that period. That’s 6.75 qualifying years out of 16 (6.75 divided by 16) = 42.2% of his ownership period.

• Principle Residence Relief is calculated as : £160,000 × 42.2% = £67,520
• Gain after Principle Residence Relief: £92,480

James did not share occupancy with a tenant, so Letting Relief does not apply. After the £3,000 annual exempt amount, his taxable gain is £89,480. If James is a higher-rate taxpayer, the bill is roughly £89,480 × 24% ≈ £21,475.

Worked example 3: Jointly owned property, two basic rate taxpayers

A married couple jointly own a second home, 50/50, with a £60,000 total gain on sale and no PRR available (it was never either partner’s main home). Each partner’s share of the gain is £30,000.

• Each partner deducts their own £3,000 annual exempt amount, leaving £27,000 taxable per person.
• If both are basic rate taxpayers and the gain fits within their remaining basic rate band, each pays 18%: £27,000 × 18% = £4,860 each, £9,720 total — considerably less than if one person owned the whole gain and tipped into the higher rate band.

This illustrates why joint ownership and timing disposals around income are two of the most effective (and entirely legitimate) levers landlords have for managing a CGT bill.

Special cases

Joint ownership

Where a property is owned jointly — by spouses, business partners, or family members — each owner is taxed individually on their share of the gain, in proportion to their ownership share. Each owner has their own annual exempt amount and is taxed according to their own income tax position for the year, which is why the same property sale can produce very different tax outcomes for each owner.

Inherited rental property

If you inherit a property, your “acquisition cost” for CGT purposes is its market value at the date of death, not what the deceased originally paid for it. This is sometimes called a CGT “uplift” — any gain that built up during the deceased’s lifetime is wiped out for CGT purposes (though it may still be relevant to Inheritance Tax on the estate). If you then keep the property and let it out before eventually selling, CGT applies to any further gain from the date of inheritance to the date of sale.

Non-arm’s-length disposals

Transfers to connected persons — children, other family members, trusts, or businesses you control — are treated by HMRC as taking place at market value, regardless of the price actually paid or whether any money changed hands at all. This prevents underselling a property to a relative to avoid CGT.

Former main residence now let

This is the accidental landlord scenario covered in Worked Example 2 above. The key things to remember: PRR applies proportionally for the period you genuinely lived there, the final nine months of ownership count automatically even if you’d already moved out, and Letting Relief will only apply on top of that if you shared occupancy with a tenant at some point — which, for most people who moved out and let the whole property, it won’t.

Reporting and payment deadlines

This is the part of the process that causes the most unnecessary penalties, because it operates entirely separately from the Self Assessment tax return that landlords are used to.

Since 27 October 2021, anyone selling a UK residential property who has CGT to pay must report the gain and pay the tax within 60 days of the completion date — not the date you exchanged contracts, and not the date you moved out, but the date legal title actually transfers on completion. This is done online through HMRC’s “Capital Gains Tax on UK property” account, accessed via Government Gateway, and is separate from your annual Self Assessment return.

Miss the 60-day window, and HMRC applies an automatic penalty — starting at £100 — plus interest on any tax paid late, before any conversation about the circumstances takes place.
A few points worth flagging:

• The 60-day rule applies even if you also complete a Self Assessment return later in the year — the property gain still has to be reported and paid within 60 days first.
• If no CGT is due at all (for example, because PRR covers the whole gain, or the loss exceeds any gain), there’s generally no requirement to report within 60 days.
• Non-UK residents face the same 60-day rule, which applies to all UK residential property disposals whether or not a gain or loss arises. In some circumstances, it’s worth checking your specific position if you’re not a UK resident.

Because the clock starts on completion, the best time to get your figures together is before you market the property, not after you’ve already got a buyer. Once contracts are exchanged, you’re committed, and there’s no opportunity to restructure ownership or change your planning at that point.

Checklist for landlords before a sale takes place
If you are planning to sell a rental property, it is worth working through these key steps before listing it for sale:

– Gather records of your original purchase price, including completion statements and legal fees.
– Retain invoices and receipts for capital improvements made to the property. You need to hold on to these for at least 6 years post the sale.
– Prepare supporting documentation for any allowable buying and selling costs, such as Stamp Duty Land Tax and estate agent charges.

• Do not miss out on which reliefs may be available to you, such as Private Residence Relief or Letting Relief, and establish the periods that qualify.

– Review whether a spouse or civil partner transfer could help reduce your overall CGT exposure, and make any changes before agreeing a sale.
– Work out your taxable income for the year to consider the impact on your CGT rate.
– Estimate your potential CGT bill using the figures above, so you’re prepared for the financial impact.
– Set up a Government Gateway account if you do not already have one, to avoid delays when it is time to report your gain.

Taking these steps before you start marketing will help ensure you don’t face unexpected tax bills, reporting delays, or penalties after completion.
For a full step-by-step walkthrough of the reporting process itself, see our guide on how to report and pay Capital Gains Tax on UK property, and for a closer look at the deadline mechanics, see CGT deadlines and 60-day rules for landlords selling UK property.

Selling to buy elsewhere?

If you’re selling one rental property with a view to buying another, it’s worth factoring in Stamp Duty Land Tax on the purchase side at the same time as you’re working through CGT on the sale — particularly if the new purchase will be a second residential property or held through a limited company, both of which carry different SDLT treatment. See our guide to stamp duty for landlords for rates on second homes and buy-to-let purchases.

Frequently asked questions

Do landlords pay capital gains tax on rental property?
If you have made a gain that exceeds the current annual CGT allowance of £3,000 then yes. Unless a property has been your only or main home throughout ownership (in which case Private Residence Relief usually applies), any gain made on selling, gifting, or otherwise disposing of a rental property is potentially subject to CGT at 18% or 24%, depending on your income.
How do you calculate capital gains tax on a buy-to-let?
Start with your sale proceeds, deduct selling costs, your original purchase price, buying costs, and any qualifying capital improvement costs, to arrive at your gross gain. Deduct any available reliefs and your £3,000 annual exempt amount to reach your taxable gain, then apply 18% (basic rate) and/or 24% (higher rate) depending on where the gain sits relative to your income for the year.

Do you have to report CGT within 60 days?
Yes, if CGT is due on a UK residential property disposal, you must report and pay within 60 days of the completion date, using HMRC’s online CGT on UK property service. This is separate from, and in addition to, any Self Assessment return.

Can married couples reduce CGT on jointly owned property?
Often, yes. Each spouse has their own £3,000 annual exempt amount and their own income tax band, so splitting ownership — or transferring a share to a lower-earning spouse before sale, which is itself CGT-free between spouses — can reduce the combined tax bill compared with one person holding the whole gain.

Does Private Residence Relief apply to a former rental property?
It can apply proportionally, for the period the property was genuinely your main home, plus the final nine months of ownership automatically. It doesn’t apply to the period the property was let out while you lived elsewhere, unless you were in shared occupancy with a tenant at the time (in which case Letting Relief, rather than PRR, may cover part of that period).

Thandi Nicholls Ltd
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