Introduction

Selling a rental property can lead to a hefty Capital Gains Tax (CGT) bill if the property has increased in value. Many landlords underestimate the tax they owe or miss the critical 60-day reporting deadline, which can result in penalties. This blog breaks down everything you need to know about CGT to help you plan effectively and avoid surprises.

When Does CGT Apply to Landlords?

CGT applies when you sell a buy-to-let property or second home that has risen in value since you purchased it. You’re taxed on the gain—the difference between the sale price and what you paid for the property—rather than the total sale price.

For example, if you bought a property for £200,000 and sold it for £300,000, your taxable gain would be £100,000 (before deductions or reliefs). CGT typically doesn’t apply to your main home if it qualifies for Private Residence Relief (PRR), which we’ll cover later.

How to Calculate Your Gain

Calculating your CGT liability is straightforward but requires attention to detail. Here’s the process:

1. Determine the gain: Subtract the purchase price from the sale price.
2. Deduct allowable costs: These include stamp duty, legal fees, estate agent fees, and costs for capital improvements (e.g., adding an extension, not routine maintenance).
3. Apply the Annual CGT Exemption: For the 2025/26 tax year, you can deduct £3,000 from your taxable gain.
4. Calculate the taxable gain: This is the amount you’ll pay CGT on.

For accuracy, use HMRC’s online CGT calculator or consult an accountant, especially if your situation involves complex deductions or reliefs.

Capital Gains Tax Rates for Landlords

The CGT rate you pay depends on your total taxable income (including the gain) in the tax year of the sale:

• Basic-rate taxpayers (income up to £50,270 in 2025/26): 18% on residential property gains.
• Higher or additional-rate taxpayers (income above £50,270): 28% on residential property gains.

For example, if your gain pushes you into the higher tax bracket, part of the gain may be taxed at 18% and part at 28%. An accountant can help you understand how your income and gain interact.

Key Reliefs That Can Reduce CGT

Several reliefs can lower your CGT bill:

• Private Residence Relief (PRR): If you lived in the property as your main home at some point, you may qualify for full or partial PRR, reducing or eliminating CGT. This doesn’t apply to pure investment properties.
• Lettings Relief: This is limited and typically applies only to live-in landlords who let out part of their home. Check eligibility with a tax professional.
• Spousal Transfers: Transferring a share of the property to your spouse before the sale can allow you to use their CGT allowance and potentially lower tax rates, especially if they’re in a lower tax bracket.

60-Day CGT Reporting Requirement

Since 2020, landlords must report and pay CGT within 60 days of completing the property sale. This is done through HMRC’s digital service, where you’ll submit a Property Disposal Return. Failure to report or pay on time can lead to penalties, even if no tax is due (e.g., if your gain is below the annual exemption or offset by losses).

Tip: Even if you make a loss or owe no CGT, you may still need to report the sale to HMRC. Keep records and act promptly to avoid fines.

How to Prepare Before Selling

Smart planning can reduce your CGT liability and ensure compliance:

• Get a current valuation: Know your property’s market value to estimate your gain accurately.
• Gather records: Collect documents for the original purchase price, stamp duty, legal fees, and capital improvements to maximize deductions.
• Consider timing: Spreading gains across tax years (e.g., by transferring ownership or delaying the sale) or transferring a share to your spouse can lower your tax bill.

Consulting a tax advisor before selling can help you identify the best strategies for your situation.

Conclusion

Capital Gains Tax can take a significant chunk out of your profits when selling a rental property, but understanding the rules and planning ahead can minimize the impact. By leveraging reliefs, meeting the 60-day reporting deadline, and preparing thoroughly, you can keep more of your hard-earned money.

Need help calculating your CGT or navigating the reporting process? Book a free consultation with our landlord tax specialists at contact to ensure you’re fully prepared.