Capital Gains Tax When Selling Rental Properties Guide for UK Landlords
If you’re a landlord or property investor in the UK, one of the most important tax considerations when selling a buy-to-let property is Capital Gains Tax (CGT). Whether you own one rental flat or an entire property portfolio, knowing how CGT applies can mean the difference between an efficient, well-planned sale and a large, unexpected tax bill.
In this post, we’ll explain everything you need to know about Capital Gains Tax when selling rental properties in the UK, from how it’s calculated to the latest rates for 2025, key exemptions, and proven strategies to legally reduce your liability.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit (or “gain”) you make when you sell, gift, or dispose of an asset that has increased in value. For UK landlords, this usually applies when you sell a rental property for more than you paid for it.
The key points to understand:
- CGT is charged only on the gain, not the total sale price.
- It applies to most second homes, buy-to-let properties, and investment properties.
- The rate you pay depends on your total taxable income and the type of asset sold.
Example:
If you bought a rental property for £200,000 and sold it for £300,000, your gain is £100,000. CGT is charged on this £100,000, minus any allowable deductions and your annual tax-free allowance.
HMRC reference: Capital Gains Tax overview
When Does CGT Apply to Rental Properties?
Capital Gains Tax applies when you sell or dispose of a rental property that isn’t your main home. This includes:
- Selling a buy-to-let or second home.
- Gifting the property to someone (other than your spouse or civil partner).
- Transferring ownership to a company you own.
- Swapping it for another property or asset.
You usually don’t pay CGT when:
- The property is your main residence and you qualify for Private Residence Relief.
- You sell to your spouse or civil partner.
For landlords, CGT is a standard part of the exit process when selling rental properties but there are ways to reduce what you owe.
CGT Rates on Rental Property Sales
As of the 2025/26 tax year, CGT rates for residential property are:
| Income Tax Band | CGT Rate on Residential Property |
| Basic Rate | 18% |
| Higher & Additional Rate | 24% |
Important change for 2024/25 onwards: The higher rate for residential property gains was reduced from 28% to 24% in April 2024, making the UK slightly more favourable for property disposals.
Tip: The rate you pay depends on your total taxable income plus the gain. If the gain pushes you into the higher band, part will be taxed at 18% and part at 24%.
HMRC source: CGT rates
How to Calculate CGT on a Rental Property
Calculating CGT is a five-step process:
Work out the gain
- Sale price – purchase price = gain.
- Deduct allowable purchase and sale costs (e.g., solicitor fees, stamp duty, estate agent fees).
Deduct improvement costs
- Capital improvements (extensions, new bathrooms) can be deducted.
- Routine maintenance (repairs, decorating) cannot.
Subtract your Annual Exempt Amount (AEA)
- For 2025/26, this is £3,000 per person.
- Couples who jointly own property can each use their allowance.
Apply the correct tax rate(s)
- Based on your income tax band.
Account for reliefs
- Such as Lettings Relief (in limited cases).
Example Calculation:
- Bought in 2010: £180,000
- Sold in 2025: £300,000
- Gain: £120,000
- Allowable costs: £10,000 (solicitor, agent fees)
- Improvement costs: £15,000 (extension)
- Net gain: £95,000
- Annual allowance: £3,000
- Taxable gain: £92,000
- If you’re a higher-rate taxpayer: £92,000 × 24% = £22,080 CGT
