Capital gains tax on a buy-to-let property is charged at 18% or 24% on the profit you make when you dispose of it, after a £3,000 annual tax-free allowance for the 2025–26 and 2026–27 tax years. The rate depends on your total income. You have 60 days from completion to report the sale and pay what you owe, which is where most landlords get caught out.
How to Work Out the Gain
The tax is on the profit, not the sale price. The calculation runs like this: take the sale price, subtract what you originally paid, subtract your allowable costs, subtract the £3,000 annual exempt amount, and what remains is the taxable gain.
Your starting point is normally the purchase price. If you inherited the property, use its market value on the date of death. If it was gifted to you, use the market value at the time of the gift. The sale price is what you received on completion, unless you gifted or sold the property below market value, in which case HMRC substitutes market value for the figure on the paperwork.
What You Can Deduct
Two categories of cost come off the gain: the costs of buying and selling, and money spent improving the property.
On the transaction side, HMRC allows the Stamp Duty Land Tax you paid at purchase, solicitor fees for conveyancing on both the purchase and the sale, estate agent commission, surveyor and valuation fees, and the cost of advertising for a buyer.1HM Revenue & Customs. Capital Gains Manual – CG15250 The list is exhaustive: only what HMRC names is deductible.
Capital improvements also come off. An extension, a loft conversion, a new bathroom fitted where none existed, a conservatory: work that adds something new or materially enhances the property qualifies. Routine maintenance does not. Repainting, patching a roof, or swapping a broken boiler for a similar model keeps the property in its existing condition, so HMRC treats those costs as revenue expenses that belong on your rental accounts rather than deductions against the gain. HMRC will challenge claims where repairs have been recast as improvements.
Keep the paperwork. Completion statements, builder invoices, and receipts are what let you claim these costs a decade later. Landlords who hold properties long-term regularly lose thousands in deductions because the evidence has been thrown out.
Which Rate You Pay
The £3,000 annual exempt amount comes off first.2GOV.UK. Capital Gains Tax Rates and Allowances The rate on what is left depends on your other income for the year. HMRC stacks the gain on top of your taxable income and applies the rate that matches each band.3GOV.UK. Capital Gains Tax – Rates and Allowances
- 18% on any part of the gain that sits within the basic rate income tax band (up to £37,700 for 2026–27).
- 24% on any part above that.
In practice, many landlords have rental income and employment earnings that already fill the basic rate band, so the whole gain ends up at 24%. If the gain straddles the boundary, part is taxed at 18% and the rest at 24%.3GOV.UK. Capital Gains Tax – Rates and Allowances
Private Residence Relief if You Once Lived There
A lot of buy-to-lets were once someone’s home. If yours was, Private Residence Relief can reduce or wipe out the taxable gain.
Relief covers the period the property was your only or main residence, plus the final nine months of ownership regardless of who was living there.4HM Revenue & Customs. Capital Gains Manual – CG64985 – Private Residence Relief Final Period Exemption The gain is apportioned on a time basis. Own the property for ten years, live in it for seven and let it for three, and only about 27 months of the ownership period generate a taxable gain once the final nine months are stripped out.5GOV.UK. Tax When You Sell Your Home – If You Let Out Your Home
Lettings Relief is now narrow. Since April 2020, it only applies if you shared the property with your tenant during the letting period. If you moved out entirely before renting, it does not help. Where it does apply, relief is capped at the lowest of the PRR you received, £40,000, or the gain attributable to the letting period.5GOV.UK. Tax When You Sell Your Home – If You Let Out Your Home
Gifts, Transfers, and Other Disposals
You do not need to sell to trigger the tax. Gifting the property to a family member is a disposal, and HMRC uses market value on the date of the gift to work out the gain. Selling to a relative at a discount works the same way: the actual price is ignored and market value applies.6GOV.UK. Capital Gains Tax – Gifts Swapping the property for another asset counts. So does transferring it into a company you control.
The one significant exception is transfers between spouses or civil partners who are living together. These happen at “no gain, no loss,” and the receiving partner takes on your original cost base rather than crystallising a tax charge.7HM Revenue & Customs. HS281 Capital Gains Tax Civil Partners and Spouses That protection falls away if you separated and did not live together at any point during the tax year of the transfer.6GOV.UK. Capital Gains Tax – Gifts
Offsetting Capital Losses
Losses on other asset disposals in the same tax year come off the gain before tax is calculated. Losses have to be set against gains in the year they arise first. Any excess carries forward to future years and can be used to bring a gain down to the annual exempt amount.8GOV.UK. Capital Gains Tax – Losses
One restriction to know: a loss on a disposal to a family member or other connected person can only be offset against a gain from that same person, not from anyone else.8GOV.UK. Capital Gains Tax – Losses
Reporting and Paying Within 60 Days
UK residents have to report the sale and pay the tax within 60 days of the completion date.9GOV.UK. Report and Pay Your Capital Gains Tax – If You Sold a Property in the UK on or After 6 April 2020 The clock starts on legal completion, not exchange of contracts, and not the day the money lands in your account.
You file through HMRC’s “Capital Gains Tax on UK property” online account. The service works through the calculation, gives you a payment reference, and tells you how to pay. Setting up a Government Gateway account from scratch takes a few days, so start early.
The disposal also has to go on your Self Assessment tax return for the year. The 60-day filing is effectively a payment on account; the annual return is where HMRC reconciles the final position and where any adjustments are made if your circumstances shift between the two filings.10GOV.UK. Tell HMRC About Capital Gains Tax on UK Property or Land
What Happens if You Miss the Deadline
Penalties escalate quickly. A £100 fixed penalty hits straight away.9GOV.UK. Report and Pay Your Capital Gains Tax – If You Sold a Property in the UK on or After 6 April 2020 If the return is still outstanding after three months, daily penalties of £10 can run for up to 90 days. At six months, HMRC charges 5% of the tax due or £300, whichever is greater. At twelve months, another 5% or £300 applies. Interest accrues on the unpaid tax from the original due date.
These stack. On a £20,000 tax bill left for a year, that is the £100 initial charge, up to £900 in daily penalties, two 5% surcharges totalling £2,000, and interest running throughout. Solicitors can be slow to send completion statements, so build the 60-day window into your sale planning rather than treating it as an afterthought.