Capital Gains Tax for UK Landlords: Complete Guide When Selling Rental Property 2026

Published 12 May 2026

Disclaimer: This article is for information only and does not constitute professional tax or legal advice. Tax rules can be complex, and individual circumstances vary. Always consult a qualified accountant or tax adviser before making decisions based on this content.

If you're a UK landlord planning to sell a buy-to-let property, you need to understand Capital Gains Tax (CGT). CGT can take 18-24% of your profit, but many landlords overpay because they don't know what reliefs and deductions are available.

This guide explains how CGT works for UK landlords, what rates apply, how to calculate your tax bill, what costs you can deduct, and how to claim Private Residence Relief if you lived in the property before renting it out.

What is Capital Gains Tax for Landlords?

Capital Gains Tax is charged on the profit (gain) you make when you sell a buy-to-let property. The gain is:

Capital Gain Formula:

Sale price - Purchase price - Allowable costs = Gain

You then deduct the annual CGT allowance (£3,000 in 2026/27) and pay tax on the remaining gain at 18% or 24%, depending on your Income Tax band.

CGT Rates for Landlords in 2026/27

CGT rates on residential property are higher than CGT on shares or other assets:

  • Basic rate taxpayers: 18% CGT on property gains
  • Higher/additional rate taxpayers: 24% CGT on property gains

Your CGT rate depends on your total income for the tax year. If your income (including the property gain) pushes you into the higher rate band (over £50,270), you pay 24% on the portion above the threshold.

Worked Example: Basic Rate Taxpayer

Scenario:

  • Salary: £35,000
  • Property gain: £40,000 (after deducting allowable costs)
  • Annual CGT allowance: £3,000

Calculation:

  • Taxable gain: £40,000 - £3,000 = £37,000
  • Total income: £35,000 + £37,000 = £72,000
  • Higher rate threshold: £50,270
  • Amount taxed at 18%: £50,270 - £35,000 = £15,270
  • Amount taxed at 24%: £37,000 - £15,270 = £21,730

CGT bill: (£15,270 × 18%) + (£21,730 × 24%) = £2,749 + £5,215 = £7,964

Worked Example: Higher Rate Taxpayer

Scenario:

  • Salary: £60,000 (already higher rate)
  • Property gain: £80,000 (after deducting allowable costs)
  • Annual CGT allowance: £3,000

Calculation:

  • Taxable gain: £80,000 - £3,000 = £77,000
  • All £77,000 taxed at 24% (you're already a higher rate taxpayer)

CGT bill: £77,000 × 24% = £18,480

What Costs Can You Deduct from Capital Gains Tax?

You can deduct the following costs when calculating your capital gain:

1. Purchase Costs (When You Bought the Property)

  • Original purchase price
  • Legal fees (solicitor, conveyancer)
  • Stamp Duty Land Tax (SDLT) paid
  • Surveyor fees
  • Estate agent fees (if you paid them when buying)

2. Sale Costs (When You Sell the Property)

  • Estate agent fees
  • Solicitor/conveyancer fees
  • EPC (Energy Performance Certificate) if required for the sale

3. Capital Improvements (During Ownership)

You can deduct the cost of capital improvements (work that adds value or changes the property), but NOT repairs (work that restores the property to its original condition).

Capital improvements you CAN deduct:

  • Extensions or loft conversions
  • Adding a new bathroom or bedroom
  • Installing a new kitchen where one didn't exist before
  • Replacing single-glazed windows with double-glazing
  • Installing central heating where there wasn't any before
  • Landscape improvements (e.g., building a garage, driveway, or patio)

Repairs you CANNOT deduct from CGT:

  • Repainting walls
  • Fixing or replacing a broken boiler with a similar model
  • Repairing gutters, roof tiles, or fences
  • Replacing worn carpets or appliances

Why? Repairs are claimed as rental expenses during ownership (reducing your rental income tax each year). Capital improvements cannot be claimed as rental expenses, so they're deducted from CGT when you sell instead.

Worked Example: Deducting Costs

Property sale:

  • Sale price: £300,000
  • Purchase price (2016): £200,000
  • Legal fees (purchase): £1,500
  • Stamp Duty (purchase): £1,500
  • Loft conversion (2019): £25,000
  • Estate agent fees (sale): £4,500
  • Legal fees (sale): £1,200

Calculation:

  • Total allowable costs: £200,000 + £1,500 + £1,500 + £25,000 + £4,500 + £1,200 = £233,700
  • Gain: £300,000 - £233,700 = £66,300
  • Less CGT allowance: £66,300 - £3,000 = £63,300

Taxable gain: £63,300

Private Residence Relief (PRR) for Former Homes

If you lived in the property as your main home before renting it out, you can claim Private Residence Relief (PRR) to reduce your CGT bill.

How PRR Works

PRR exempts the portion of the gain that relates to the period you lived in the property as your main home. You also get final period exemption for the last 9 months of ownership, even if you weren't living there.

Formula:

(Months lived in property + 9 months) ÷ Total months owned × Total gain = PRR exemption

Worked Example: PRR for a Former Home

Scenario:

  • Bought property in Jan 2016, lived in it as main home until Dec 2019 (4 years = 48 months)
  • Rented it out from Jan 2020 to Dec 2025 (6 years = 72 months)
  • Sold in Jan 2026
  • Total ownership: 10 years = 120 months
  • Capital gain (after costs): £80,000

PRR Calculation:

  • Months lived in property: 48
  • Final 9 months exemption: 9
  • Total exempt period: 48 + 9 = 57 months
  • PRR exemption: (57 ÷ 120) × £80,000 = £38,000

Taxable gain after PRR: £80,000 - £38,000 = £42,000

Then deduct CGT allowance (£3,000) = £39,000 taxable

Important: PRR only applies if the property was your main home. If you owned multiple properties and never lived in this one as your main residence, PRR does not apply.

Lettings Relief (Mostly Abolished in 2020)

Lettings relief used to give landlords up to £40,000 of CGT relief when selling a former home that had been rented out. From April 2020, lettings relief was severely restricted.

Lettings relief now only applies if:

  • You lived in the property as your main home at some point, AND
  • You lived in the property at the same time as your tenant (e.g., you rented out a room while living there)

If you moved out before renting the property, lettings relief does not apply (even if you lived there previously).

Most landlords can no longer claim lettings relief. If you rented out your former home after moving out, you can only claim PRR (as explained above).

When Do You Pay CGT After Selling a Rental Property?

Unlike Income Tax (which you pay in January via Self Assessment), CGT on property sales has a 60-day reporting deadline.

You must:

  1. Report the sale to HMRC using the Capital Gains Tax on UK Property service within 60 days of completion
  2. Pay the CGT within 60 days (or request a payment plan if eligible)
  3. Report the sale again in your Self Assessment return (even though you've already paid)

Penalties for late reporting:

  • Initial penalty: £100
  • Daily penalties: £10/day after 3 months (up to 90 days)
  • 6-month penalty: £300 or 5% of the tax due (whichever is higher)
  • 12-month penalty: £300 or 5% of the tax due (whichever is higher)

Interest on late payment: HMRC charges interest on unpaid CGT from the 60-day deadline until you pay.

How to Reduce Your CGT Bill as a Landlord

1. Use Your Annual CGT Allowance

Every UK taxpayer gets an annual CGT allowance (£3,000 in 2026/27). You can use this to reduce your taxable gain each year.

Strategy: If you own multiple properties, consider selling them in different tax years to use multiple years' CGT allowances.

2. Transfer Property to Your Spouse

Transfers between married couples or civil partners are CGT-free. If your spouse is a basic rate taxpayer (18% CGT) and you're a higher rate taxpayer (24% CGT), transferring the property before selling can save 6% on the gain.

Example: £60,000 gain × 6% = £3,600 saved.

3. Claim All Allowable Costs

Don't forget to deduct:

  • Legal fees when buying and selling
  • Stamp Duty paid
  • Estate agent fees
  • Capital improvements (extensions, loft conversions, new kitchen, double-glazing)

4. Claim PRR if You Lived in the Property

If you lived in the property before renting it out, claim PRR for the period you lived there + the final 9 months. This can exempt a significant portion of the gain.

5. Consider Selling in a Lower-Income Year

If you're close to the higher rate threshold (£50,270), selling the property in a year when your income is lower (e.g., after retirement, or a year with no bonus) can keep you in the 18% CGT band instead of 24%.

Common CGT Mistakes Landlords Make

Mistake 1: Not reporting the sale within 60 days

Problem: You wait until your Self Assessment deadline (31 January) to report the sale. HMRC fines you for late reporting.

Fix: Use HMRC's Capital Gains Tax on UK Property service within 60 days of completion.

Mistake 2: Forgetting to deduct capital improvements

Problem: You paid £20,000 for a loft conversion but forgot to deduct it from your gain. You overpay CGT by £4,800 (24% × £20,000).

Fix: Keep records of all capital improvements (invoices, receipts) and deduct them when calculating your gain.

Mistake 3: Claiming PRR when you never lived in the property

Problem: You bought a property as a buy-to-let investment and never lived in it, but you claim PRR anyway. HMRC disallows it and charges penalties.

Fix: PRR only applies if the property was your main home. If you never lived there, you cannot claim PRR.

Mistake 4: Deducting repairs as capital costs

Problem: You deduct the cost of repainting or fixing a boiler from your CGT. HMRC disallows it because repairs are not capital improvements.

Fix: Only deduct capital improvements (extensions, new kitchen, double-glazing). Repairs are claimed as rental expenses during ownership, not when selling.

FAQ

How much Capital Gains Tax do landlords pay when selling a rental property?

UK landlords pay Capital Gains Tax at 18% (basic rate taxpayers) or 24% (higher/additional rate taxpayers) on the gain from selling a buy-to-let property. The gain is: sale price minus purchase price minus allowable costs (legal fees, improvements, estate agent fees). You can deduct the annual CGT allowance (£3,000 in 2026/27) from your gain before calculating tax.

When do landlords pay Capital Gains Tax after selling a property?

Landlords must report the sale and pay Capital Gains Tax within 60 days of completion using HMRC's Capital Gains Tax on UK Property service. You cannot wait until your Self Assessment deadline in January. Penalties apply for late reporting or payment.

Can landlords claim Private Residence Relief on a former home?

Yes. If you lived in the property as your main home before renting it out, you can claim Private Residence Relief for the period you lived there, plus the final 9 months of ownership (even if you weren't living there). This reduces the taxable gain.

What costs can landlords deduct from Capital Gains Tax?

Landlords can deduct: original purchase price, legal fees when buying, Stamp Duty paid, estate agent and legal fees when selling, capital improvements (extensions, loft conversions, new kitchen, double-glazing), and surveyor fees. You cannot deduct repairs or maintenance costs (those are claimed as rental expenses during ownership).

Is there still lettings relief for landlords in 2026?

Lettings relief was significantly restricted from April 2020. It now only applies if you lived in the property at the same time as your tenant (e.g., renting out a room while you lived there). If you moved out before renting the property, lettings relief does not apply.

Related Articles

Want to track your rental property profit and CGT exposure?

Our upcoming UK Landlord Property Manager Notion template will include rental income tracking, expense categorization, Section 24 mortgage interest calculator, and CGT gain estimation when you sell.

In the meantime, check out our Self Assessment & MTD Tracker for sole traders and freelancers.