Capital Gains Tax When Selling a Rental Property

Capital Gains Tax is based broadly on the gain you make when you dispose of the property, rather than the amount you receive from the sale. Certain buying, selling and improvement costs can reduce the gain, and tax relief may also be available depending on how the property has been used.

There is also an important deadline to be aware of. If Capital Gains Tax is due on the sale of a UK residential property, it will normally need to be reported and paid to HMRC within 60 days of completion.

This means it is worth considering the tax position before the sale completes rather than leaving it until your next Self Assessment tax return.

This guide focuses on individual UK-resident landlords selling UK residential property. Different rules can apply to companies and non-UK residents.

When does Capital Gains Tax apply to a rental property?

Capital Gains Tax can arise when you sell or otherwise dispose of a property that is not fully covered by Private Residence Relief.

This commonly includes:

• Buy-to-let properties;
• Properties that were previously your home but were later rented out;
• Inherited properties that have subsequently increased in value; and
• Other residential properties that have not been your main home throughout your ownership.

The tax is charged on the gain, not simply the sale proceeds.

At its simplest:

Sale proceeds − allowable costs = capital gain

In practice, the calculation can be more involved because the original purchase costs, sale costs, capital improvements, tax reliefs, losses and your Annual Exempt Amount may all need to be considered.

Which costs can reduce the gain?

The original purchase price of the property will normally form the starting point.

Certain additional costs of acquiring and disposing of the property can also generally be deducted. These can include:

• Stamp Duty Land Tax paid when purchasing the property;
• Solicitors’ fees relating to the purchase;
• Solicitors’ fees relating to the sale;
• Estate agent fees;
• Certain valuation costs; and
• Qualifying capital improvement expenditure.

Keeping records from the original purchase, not just the eventual sale, can therefore make a significant difference when the Capital Gains Tax calculation is prepared.

Repairs and improvements are not the same thing

One area that can cause confusion is expenditure on the property during the period of ownership.

Not every amount spent on a rental property can simply be deducted from the capital gain.

There is an important distinction between repairs and maintenance and capital improvements.

Routine repairs, decorating and maintenance costs will not normally form part of the Capital Gains Tax calculation. These may instead have been deductible when calculating rental profits, subject to the usual property income rules.

Our guide to allowable expenses for landlords explains how these costs are treated when working out rental profits.

Capital expenditure that enhances the value of the property can potentially be deductible when calculating the capital gain, provided the relevant conditions are met and the improvement is still reflected in the property when it is sold.

For example, building an extension may qualify as enhancement expenditure.

Simply redecorating the property between tenants would normally be a repair or maintenance cost rather than a capital improvement.

This distinction matters because the same expenditure cannot simply be claimed once against rental income and then claimed again against the capital gain.

An example Capital Gains Tax calculation

Suppose a landlord bought a rental property for £150,000 and later sold it for £250,000.

During ownership, the following relevant costs were incurred:

The initial gain would therefore be:

£250,000 − £180,700 = £69,300

This does not necessarily mean that £69,300 is the amount on which Capital Gains Tax will ultimately be paid.

You would still need to consider matters such as:

• Ownership of the property;
• Any available Capital Gains Tax losses;
• Whether Private Residence Relief applies;
• The Annual Exempt Amount; and
• The owner’s taxable income, which can affect the rate of Capital Gains Tax payable.

The calculation therefore needs to be considered in the context of the owner’s overall circumstances.

What if the rental property is jointly owned?

Where a property is jointly owned, each owner normally calculates the gain relating to their own share of the property.

For example, if the £69,300 gain in the example above related to a property genuinely owned 50:50 by two individuals, each person’s starting share of the gain would normally be:

£69,300 ÷ 2 = £34,650

Each owner then considers their own tax position separately, including their available Annual Exempt Amount, capital losses, taxable income and any reliefs available to them.

This can be important because Capital Gains Tax is calculated on the individual owners rather than by simply calculating one tax bill for the property as a whole.

How much is the Capital Gains Tax annual allowance?

For the 2026/27 tax year, the Capital Gains Tax Annual Exempt Amount for an individual is £3,000.

This means an individual is generally only charged Capital Gains Tax on their overall net taxable gains for the year that exceed the available Annual Exempt Amount.

It is important not to think of the £3,000 as an allowance for each property.

It is an annual allowance for the individual.

If you dispose of more than one chargeable asset during the same tax year, the same Annual Exempt Amount is considered against your overall gains for that year.

Similarly, where a rental property is jointly owned by two individuals, each owner considers their own Annual Exempt Amount when calculating their individual liability.

What rate of Capital Gains Tax will I pay?

For 2026/27, the main Capital Gains Tax rates for individuals are 18% and 24%.

Which rate applies depends on your taxable income and the amount of your taxable gain.

Broadly, any part of the taxable gain that falls within your unused basic rate band can be taxed at 18%, with the remaining amount taxed at 24%.

This means being a basic-rate Income Tax payer does not necessarily mean your entire property gain will be taxed at 18%.

A sufficiently large capital gain can use up the remaining basic rate band, causing part of the gain to be taxed at 24%.

For example, two landlords selling identical properties for identical gains could have different Capital Gains Tax bills because their other taxable income is different.

What if the rental property used to be your home?

The calculation can be different if you previously lived in the property as your only or main residence.

Private Residence Relief may exempt part of the gain relating to periods when the property qualified as your main home.

Where the property has qualified as your main residence at some point, the final 9 months of ownership can also normally qualify for Private Residence Relief even if you were no longer living there during that period.

For example, someone might:

1. Buy a property and live in it as their main home;
2. Move elsewhere several years later;
3. Retain the original property and rent it to tenants; and
4. Eventually sell it.

It would be incorrect simply to treat the entire gain as taxable because the property was being rented when it was sold.

The ownership history needs to be considered to establish what proportion of the gain, if any, qualifies for Private Residence Relief.

What about Letting Relief?

Letting Relief still exists, but its availability is much more restricted than it once was.

Under the current rules, it will generally only be available where the owner was living in the property at the same time as the tenant.

A landlord who moved out of their former home and then rented the whole property to tenants should therefore not assume that the historic Letting Relief rules will reduce their gain.

This can be particularly important for landlords who have owned properties for many years and remember the more generous rules that previously applied.

What if you inherited the rental property?

If you inherited the property rather than purchasing it, the Capital Gains Tax calculation does not normally use the amount originally paid for the property by the person who died.

Instead, the relevant starting value will generally be the property’s value at the date of death.

The gain is then broadly calculated by comparing the subsequent disposal proceeds with that value, after taking account of allowable costs and other relevant adjustments.

Keeping the probate or inheritance valuation can therefore be important if the property is retained for several years before eventually being sold.

Do you have to report the sale within 60 days?

If Capital Gains Tax is due on the disposal of UK residential property, a UK resident will normally need to report the disposal and pay the estimated Capital Gains Tax within 60 days of completion.

This is separate from the normal Self Assessment timetable.

If you are already registered for Self Assessment, you must also include details of the sale and the Capital Gains Tax already reported through the property account on your tax return.

A common mistake is to assume that because the property sale happened during, for example, the 2026/27 tax year, nothing needs to be done until the Self Assessment deadline of 31 January 2028.

That can be much too late.

The 60-day property reporting requirement means the Capital Gains Tax position may need dealing with shortly after completion.

Why can the 60-day calculation be an estimate?

The property return may be due before the tax year has ended, so you may not yet know your final taxable income for that year.

That matters because your income can affect how much of the gain falls within the 18% or 24% Capital Gains Tax rate.

There may also be other capital disposals or losses later in the tax year. Anticipated future losses cannot be used to reduce the initial property-return payment; later losses may instead affect the final calculation for the year.

The amount payable through the 60-day process can therefore involve estimating the tax due based on the information reasonably available at the time.

The final position can subsequently be reconciled where necessary.

This is one of the reasons the Capital Gains Tax calculation is not always as simple as multiplying the property gain by a single tax rate.

What records should landlords keep?

Ideally, you should retain records relating to the property throughout the entire period of ownership.

Useful records can include:

• The original purchase completion statement;
• Evidence of the purchase price;
• Stamp Duty Land Tax records;
• Solicitors’ invoices;
• Invoices for significant improvements;
• Evidence showing what improvement work was actually carried out;
• Estate agent invoices;
• The sale completion statement;
• Relevant property valuations; and
• Records showing periods when you occupied the property as your main home.

This is particularly important for long-held properties.

If you sell a property after owning it for 15 or 20 years, trying to reconstruct the cost of an extension or locate the original purchase paperwork at the point of sale can be considerably more difficult than retaining the information as you go.

It is also worth keeping capital improvement records separately from ordinary repairs and maintenance. That makes it easier to distinguish costs previously considered against rental income from expenditure that may become relevant to a future Capital Gains Tax calculation.

Consider Capital Gains Tax before completion

If you are planning to sell a rental property, it is worth considering the potential Capital Gains Tax liability before the transaction completes.

Doing so gives you time to:

• Establish the original acquisition cost;
• Identify allowable purchase and sale costs;
• Review historic improvement expenditure;
• Consider any capital losses available;
• Establish whether Private Residence Relief may apply;
• Understand the likely tax liability; and
• Prepare for the 60-day reporting and payment deadline.

For properties with a long or complicated ownership history, establishing these details can take time.

How can Baldwin’s Accountancy Services help?

Baldwin’s Accountancy Services provides accountancy and tax support for landlords, including calculating Capital Gains Tax when a rental property is sold, considering the costs and reliefs that may be available and dealing with the relevant reporting to HMRC.

We can also help with ongoing rental accounts and Self Assessment where you receive income from property.

If you are considering selling a rental property, getting the records together before completion can make the eventual calculation and reporting process much more straightforward.