Capital Gains Tax on Property Disposal: A Landlord's Guide

Capital Gains Tax (CGT) is one of the most significant costs of selling a rental property. Understanding the rules — and planning ahead — can make a material difference to your net proceeds.

CGT Rates on Residential Property

CGT on residential property is charged at:

- 18% for gains falling within the basic rate income tax band

- 24% for gains falling within the higher or additional rate band

Note: these rates apply specifically to residential property. The lower rates (10%/20%) that apply to other assets do not apply to buy-to-let property. Rates were updated in the Autumn 2024 Budget — always verify the current rates with HMRC or a qualified accountant before completing a sale.

The Annual Exempt Amount

Every individual has an annual CGT exempt amount. For 2025/26 this is £3,000 — significantly reduced from the £12,300 that applied until April 2023. Gains up to this amount are tax-free. Check HMRC for the current year's exempt amount.

The 60-Day Reporting Rule

This is the rule most landlords miss:

- CGT on residential property must be reported and paid within 60 days of completion

- This is not the same as the self-assessment deadline (31 January following the tax year)

- You must use HMRC's online Capital Gains Tax on UK Property service

- Failure to report within 60 days results in automatic penalties and interest

Calculating Your Gain

Your taxable gain is broadly:

> Sale price − original purchase price − allowable costs

Allowable costs include:

- Stamp Duty Land Tax paid on purchase

- Legal and conveyancing fees (purchase and sale)

- Estate agent fees on sale

- Capital improvement costs (not repairs or maintenance)

- Enhancement expenditure that adds value and is still present at sale

What You Cannot Deduct

- Mortgage interest (this is an income tax deduction, not a CGT deduction)

- Repairs and maintenance costs

- Letting agent management fees

- Any costs already claimed against income tax

Private Residence Relief

If the property was ever your main home, you may be entitled to Private Residence Relief (PRR) for the period you lived there, plus the final 9 months of ownership regardless of occupation.

PRR can significantly reduce your gain if you lived in the property before letting it. The calculation is proportional: the relief covers the fraction of the ownership period during which the property was your main residence (plus the final 9 months).

Lettings Relief

Lettings relief was substantially restricted from April 2020. It now only applies where the landlord was in shared occupation with the tenant — which is rare in standard buy-to-let situations. Most landlords cannot claim it.

Transferring to a Spouse or Civil Partner

Transfers between spouses and civil partners are on a no-gain, no-loss basis — no CGT is triggered on the transfer itself. This can be used to utilise a lower-rate taxpayer's annual exempt amount and basic rate band, but the gain is deferred to the eventual sale.

Planning Considerations

- Timing: if you are close to the higher rate threshold, consider whether completing in a different tax year changes your effective rate

- Losses: CGT losses from other disposals in the same tax year can be offset against your property gain

- Instalment sales: if you receive the proceeds in instalments, CGT may be spread — take advice

- Incorporation: transferring property into a limited company triggers CGT and SDLT — model carefully before proceeding

⚠️ Important Disclaimer

CGT rates, the annual exempt amount and the 60-day reporting rule are subject to change in each Budget. This article reflects the position as at the date of publication. Tax law changes frequently — always verify current rates and thresholds with HMRC or a qualified accountant before completing a sale. This article is for general guidance only and does not constitute tax advice. You should not rely on it as a substitute for professional advice tailored to your circumstances.