Most landlords think hard about the tax they pay every year — income tax on rent, Section 24, the mortgage interest credit — and barely think about the tax they will pay once, at the end: capital gains tax (CGT) on the sale. That is a mistake, because CGT is often the largest single tax bill a landlord ever pays, and unlike rent, it arrives in one lump sum, within 60 days of completion, whether or not the sale proceeds are still sitting in the bank.
This guide explains how CGT on a UK rental property works in 2026/27: the rates, the £3,000 annual exempt amount, what you can deduct, the 60-day reporting rule, the reliefs that genuinely reduce a bill, and where the traps are. It is general information, not personal tax advice. CGT interacts with your income in the year of sale, your ownership history and your ownership route, so take advice from a property accountant before you exchange, not after you complete.
The short answer
When an individual sells a UK residential property that has not been their only or main home throughout ownership, CGT is charged on the gain — the sale price minus the purchase price and allowable costs — not on the whole sale price. For 2026/27, the residential rates are 18% on the part of the gain that falls within your unused basic-rate income tax band and 24% on the rest, after deducting your £3,000 annual exempt amount. If CGT is due, you must report the disposal to HMRC and pay the estimated tax within 60 days of completion.
Three points catch landlords out most often. First, the gain is stacked on top of your income for the year, so a large gain can push part of itself into the 24% band even if you are normally a basic-rate taxpayer. Second, the £3,000 allowance is small — it was £12,300 as recently as 2022/23 — so almost every profitable sale now produces a bill. Third, companies do not pay CGT at all: a property held in a limited company is taxed on disposal under corporation tax instead, which is one more reason the ownership-route decision in this series matters long before you sell.
The 2026/27 rates and allowance
For individuals disposing of UK residential property in 2026/27:
- Annual exempt amount: £3,000 per person. Each owner has their own allowance, so a jointly owned property gives two allowances — £6,000 between a couple — where the ownership shares genuinely support it.
- 18% on the part of the taxable gain that falls within your unused basic-rate band.
- 24% on the part above that band.
The basic-rate band for 2026/27 is £37,700 above the personal allowance (£12,570, tapered away by £1 for every £2 of income above £100,000, reaching zero at £125,140). The mechanics matter: you add the taxable gain to your taxable income for the year, and the slice of gain that fits inside whatever basic-rate band you have left is taxed at 18%; the rest is taxed at 24%. A landlord with little other income in the year of sale therefore pays 18% on a larger slice than a landlord with a full-time salary — which is why timing a sale into a lower-income year can be worth thousands.
These rates were unchanged by the Budget on 28 October 2026, according to trade coverage of that Budget. Rental income tax, by contrast, is set to move to separate property income rates from April 2027 — confirm both against HMRC guidance at publication date. CGT itself is UK-wide; what differs by nation is purchase tax (SDLT, Land and Buildings Transaction Tax in Scotland, Land Transaction Tax in Wales) and, in Scotland, the income tax bands that set your basic-rate slice.
How the gain is calculated, step by step
Work through it in this order:
1. Sale proceeds. The price you actually received. If you gifted the property rather than selling it, the market value at the date of the gift is used instead — gifting does not dodge CGT, except between spouses and civil partners, where transfers are normally made at no gain and no loss. 2. Deduct the purchase price. What you paid for the property, including the purchase costs that were capital in nature: SDLT, solicitor and survey costs on purchase. 3. Deduct capital improvement costs. Money spent on improvements that increased the property's value or changed its nature — an extension, a loft conversion, a new heating system where none existed. Routine repairs, redecoration and maintenance are revenue costs, already claimed against rental income year by year; they cannot be deducted again here. Keep invoices: HMRC can ask, years later, for evidence that a claimed cost was capital and not a repair. 4. Deduct sale costs. Estate agent fees, solicitor costs on sale, and any costs of marketing the property. 5. Deduct reliefs. Private Residence Relief (below) and any allowable losses brought forward from earlier disposals. 6. Deduct the £3,000 annual exempt amount. 7. Apply the rates. Stack what is left on top of your income and apply 18% and 24% as described above.
What you cannot deduct: mortgage capital repayments, mortgage interest (that is an income-tax matter under Section 24, not a CGT deduction), and the cost of your own time.
Worked example: a £110,000 gain
Take a landlord who bought a buy-to-let for £180,000, spent £10,000 on a capital improvement (a new extension, invoiced and documented), and sells for £290,000. Purchase costs were £3,000 and sale costs £4,000.
- Gross gain: £290,000 − £180,000 = £110,000
- Less capital improvement: £10,000 → £100,000
- Less purchase and sale costs: £7,000 → £93,000
- Less annual exempt amount: £3,000 → taxable gain £90,000
If the landlord is a higher-rate taxpayer with no basic-rate band left, the whole £90,000 is taxed at 24%: a bill of £21,600.
If instead the landlord has £15,000 of unused basic-rate band in the year of sale, £15,000 is taxed at 18% (£2,700) and the remaining £75,000 at 24% (£18,000): a bill of £20,700. The £900 difference is purely a timing and income effect — same property, same gain, different year.
If the property is jointly owned 50/50 by a couple, each partner has a £45,000 taxable gain after their own £3,000 allowance, and each partner's own income position decides their 18%/24% split. Joint ownership does not automatically halve the bill — it depends on each owner's band — but it usually reduces it, which is why the ownership split is worth settling long before a sale is in view.
The 60-day rule: report and pay, or face penalties
Since April 2020, UK residents who dispose of a UK residential property on which CGT is due must file a UK Property Disposal return and pay the estimated tax within 60 days of completion — completion, not exchange. Miss the deadline and penalties and interest start to accrue, even if you later pay the right amount through self-assessment.
The 60-day return is a payment on account, not the final word. You then reconcile the figure in your self-assessment return for the year, where your final income, reliefs and losses are known. If you overpaid on the 60-day return, the excess is repaid or credited; if you underpaid, the balance is due.
Two practical consequences follow. First, do not spend the whole sale proceeds on the next deposit before setting the CGT money aside — the 60-day clock does not wait for your next purchase. Second, if your total gains for the year fall within the £3,000 allowance, or no CGT is due (for example, full Private Residence Relief applies), no 60-day return is needed — but confirm that position rather than assuming it, because an incorrect assumption is what triggers the penalty.
Non-UK residents face a 60-day return even where no tax is due, and different deadlines apply to some trusts and estates. If either applies to you, take specialist advice before completion.
Reliefs that genuinely reduce the bill
Private Residence Relief (PRR). If the property was your only or main home for part of ownership, the gain for those years — plus the final 9 months in most cases — is exempt, apportioned by time. For a pure buy-to-let, never lived in by the owner, PRR is nil. The longer 36-month final period applies only in limited cases, such as a disabled person or someone moving into care.
Lettings relief. Since April 2020, lettings relief is available only where the owner shared occupation with the tenant — in practice, a very narrow set of cases. Do not underwrite a sale on lettings relief unless a specialist has confirmed you qualify. Older guides that describe generous lettings relief are out of date.
Losses. Capital losses from earlier disposals can be carried forward indefinitely and set against later gains. If you sold a property at a loss in a previous year and never claimed it, check whether it is still available — it may be worth more now, against a 24% gain, than it was then.
Spouse and civil partner transfers. Transfers between spouses and civil partners are normally made at no gain and no loss, so a share can be transferred before sale to use a partner's allowance and basic-rate band. The transfer must reflect genuine beneficial ownership, and for rental income the Form 17 rules in the Section 24 guide apply to the income split. Plan this in a prior tax year where possible, not in the week of exchange.
Incorporation relief. Transferring a property business into a company can defer CGT in genuine-business cases, but it does not remove SDLT, and HMRC applies the business test strictly. The limited-company guide in this series explains why transferring existing personal properties into a company is usually expensive — CGT and SDLT together routinely wipe out several years of tax savings.
Selling from a limited company: a different tax entirely
A company selling a rental property does not pay CGT: the gain is charged to corporation tax as part of company profits (indexation allowance, frozen since 2017, no longer shelters inflation), and extracting proceeds to a shareholder then attracts dividend tax on top. That double layer suits landlords who retain and reinvest profit, and suits income-now landlords less well. Model both layers before assuming the company route is cheaper on exit — a 24% personal CGT bill with no second charge can beat corporation tax plus dividend tax, depending on the numbers.
Timing and exit planning: what is legitimate, what is not
Legitimate planning is mostly about timing and structure, decided in advance:
- Choose the tax year. A sale completing in a year when your income is lower — after retirement, in a career break, in a year with no other gains — leaves more of the gain in the 18% band.
- Spread across tax years. Two properties sold in different tax years use two annual exempt amounts; two sold in the same year share one.
- Use both allowances. Genuine joint ownership uses two allowances and two basic-rate bands.
- Crystallise losses deliberately. A loss-making disposal in the same year as a gain-making one shelters part of the gain.
What is not legitimate: backdating documents, inventing improvement costs, or claiming repairs as capital. HMRC checks disposals against Land Registry data.
CGT and the rest of the exit
CGT is only one exit cost. Budget for agent and solicitor fees, and — if you buy again — SDLT on the next purchase, including the 5% additional-dwellings surcharge on most buy-to-let purchases in England and Northern Ireland. CGT on the way out plus SDLT on the way in can consume a large share of the apparent profit, so price the next purchase on yield and demand (see the regional-investment and deposit guides), not on the excitement of having cash to spend. Also remember the tenancy position: under the Renters' Rights Act, selling with a tenant in situ means using the selling ground, with four months' notice and no availability in the first 12 months of a tenancy — and a sale with vacant possession attracts different buyers and prices from a sale with a sitting tenant.
Frequently asked questions
How much CGT do I pay when I sell a rental property?
CGT is charged on the gain, not the sale price, after deducting purchase price, capital improvements, purchase and sale costs, reliefs and your £3,000 annual exempt amount. In 2026/27 the rates are 18% on the part of the gain within your unused basic-rate band and 24% on the rest.
When do I have to report and pay CGT on a property sale?
If CGT is due on a UK residential property disposal, you must file a UK Property Disposal return and pay the estimated tax within 60 days of completion. You then reconcile the figure in your self-assessment return for the year.
Can I avoid CGT by transferring the property to my spouse?
Transfers between spouses and civil partners are normally made at no gain and no loss, so transferring a share before sale can use a partner's allowance and basic-rate band. It does not remove the tax — it spreads it — and the ownership must be genuine.
Related reading
- Limited Company Buy-to-Let vs Personal Name: Which Is Better in 2026?
- Section 24 Explained: Mortgage Interest Relief for UK Landlords
- The Renters' Rights Act 2026: What Every Landlord Must Do Now
- How Much Deposit Do You Need for a Buy-to-Let in 2026?
- Selling a Tenanted Property: Rules and Buyer Pool