The Quick Answer
- CGT on residential property: 18% (basic rate) or 24% (higher/additional rate)
- You’re taxed on the gain, not the sale price
- The gain is sale price minus your purchase costs, improvement costs, and selling costs
- The first £3,000 of gains is tax-free (annual exempt amount)
- If you sell jointly with a spouse, you each get £3,000 (£6,000 combined)
- You must report and pay within 60 days of completion if CGT is due
The single biggest misconception: landlords who’ve held a property for 10+ years assume the CGT bill will be enormous. Often it isn’t, because of what’s deductible. Let’s run the numbers.
How to Calculate Your Gain
CGT isn’t charged on the sale price. It’s charged on the profit after you’ve deducted everything you’re allowed to deduct. Here’s the structure:
Step 1: Start with the sale price
Step 2: Deduct your base cost
Your base cost is what you paid for the property plus the costs of buying it:
- Purchase price
- Stamp duty
- Solicitor fees
- Survey and valuation costs
- Estate agent fees (if you paid them when buying)
Step 3: Deduct capital improvement costs
Improvements you’ve made that added value to the property, not routine maintenance:
- Extensions
- New kitchen or bathroom (full replacement, not repair)
- Structural work
- New windows or roof (where it’s an upgrade, not like-for-like repair)
Not deductible: Decorating, routine repairs, boiler servicing, insurance, mortgage interest. If it maintained the property rather than improved it, it doesn’t reduce your gain.
Step 4: Deduct selling costs
- Estate agent fees
- Solicitor fees
- Marketing costs
Step 5: Deduct the annual exempt amount
The first £3,000 of your net gain is tax-free. If the property is jointly owned, you each get £3,000.
Step 6: Apply the CGT rate
18% if the gain, added to your other taxable income, falls within the basic rate band. 24% on anything that spills into the higher rate band. If you’re already a higher rate taxpayer, the full gain is taxed at 24%.
Worked Example: Birkenhead Two-Bed Terrace
Here’s a realistic Wirral scenario with the full calculation.
The property:
Frank bought a two-bed terrace in Birkenhead in 2012 for £95,000. He spent £3,500 on stamp duty and legal fees at purchase, and put in a new kitchen and bathroom in 2018 for £12,000. He sells in 2026 for £175,000, paying £3,500 in estate agent and solicitor fees.
| |
|---|
| Sale price | £175,000 |
| Purchase price | –£95,000 |
| Purchase costs (stamp duty + legal fees) | –£3,500 |
| Capital improvements (kitchen + bathroom) | –£12,000 |
| Selling costs (agent + solicitor) | –£3,500 |
| Net gain | £61,000 |
| Less: annual exempt amount | –£3,000 |
| Taxable gain | £58,000 |
CGT at higher rate (24%): £13,920
CGT at basic rate (18%): £10,440
Frank held that property for 14 years. It went up £80,000 in value. His actual taxable gain, after deductions, is £58,000. As a higher rate taxpayer, he pays £13,920 in CGT. That’s real money, but it’s not the asset-destroying bill many landlords fear. He walks away with over £157,000 before the mortgage is cleared.
The key message: you’re taxed on the gain after deductions, not on the sale price. Running the actual numbers is almost always more reassuring than the rough calculation in your head.
How to Reduce Your CGT Bill
These are the legal strategies available to you. Some are straightforward; others require professional advice. All of them are worth knowing about before you sell.
Use your annual exempt amount
The first £3,000 of gains is tax-free each year. Not enormous, but it's yours to use. If the property is jointly owned with a spouse or civil partner, you each get £3,000. Make sure both names are on the title before you sell if you want both allowances.
Transfer to your spouse before selling
Transfers between married couples and civil partners are CGT-free. You can transfer the whole property or a share of it before the sale without triggering a CGT charge. This lets you utilise your spouse’s annual exempt amount and potentially their lower tax rate if they’re a basic rate taxpayer.
A higher rate landlord selling solo pays 24% on the gain. The same landlord transferring half the property to a basic rate spouse first could see half the gain taxed at 18% instead: a meaningful difference on a £58,000 gain.
Get advice before doing this. It needs to be a genuine transfer for it to be effective, and your mortgage lender may need to consent.
Offset capital losses
If you've made losses on other disposals (shares, other property, other assets), these can be offset against your BTL gain. Losses from previous tax years can be carried forward indefinitely. If you’ve had losses sitting unused, selling a BTL with a large gain is exactly when they become useful.
Timing across tax years
You get a new £3,000 annual exempt amount at the start of each tax year. If you’re disposing of multiple properties, selling in different tax years means multiple exemptions. It also means you can potentially spread the gain across two tax years, keeping more of it in the basic rate band.
This requires planning (you can't choose your completion date after the fact), but if you're selling a portfolio, it’s worth building into your exit strategy.
Private Residence Relief
If you lived in the property as your main home at any point, the period of occupation plus the final 9 months of ownership are exempt from CGT. If Frank lived in that Birkenhead terrace for two years before renting it out, those two years (plus the final 9 months) are tax-free. On a 14-year ownership period, that could eliminate a significant portion of the gain.
PRR is the most powerful CGT relief available on residential property. If you ever lived there, it’s worth calculating what you’re entitled to.
Lettings Relief, now very limited
Lettings Relief used to allow landlords to claim up to £40,000 in additional relief when they’d rented out a property that was once their main home. Since April 2020, it only applies if you shared the property with your tenant at the time of letting, which is rare. Don’t factor this in unless that was specifically your situation.
Incorporation, only for the right situation
Some landlords explore transferring their portfolio to a limited company. A company pays corporation tax on rental income (currently 25%) rather than income tax, which can be beneficial for higher rate taxpayers. But incorporation doesn’t avoid CGT. It triggers it. The transfer to the company is treated as a sale at market value, which means an immediate CGT charge.
Incorporation can be the right strategy for a large portfolio being held long-term. For a landlord looking to exit one or two properties, it’s almost certainly not. If you’re looking at this route, get specialist tax advice. It’s complex and the wrong structure can create more problems than it solves.
The 60-Day Reporting Rule
This is the one that catches landlords out, not because they’re trying to avoid it, but because they don’t know it exists.
If CGT is due on the sale, you must report and pay it within 60 days of the completion date using HMRC’s online Capital Gains Tax on UK property account. This is separate from your Self Assessment return. You’ll also need to include the disposal on your annual Self Assessment. You’re effectively reporting it twice.
Miss the 60-day deadline and you get an automatic £100 penalty, plus interest on the unpaid tax. Your solicitor handles the conveyancing; they don’t handle your CGT. That’s on you.
If the gain is fully covered by your annual exempt amount, losses, or reliefs, you generally don’t need to file a 60-day return. If there’s any doubt, assume you do and act accordingly.
Section 24 and CGT: The Double Squeeze
Section 24 doesn’t directly affect your CGT calculation. But it affects the decision to sell, and it affects what you pay.
Here’s the interaction: Section 24 restricts mortgage interest relief to 20% of interest paid. For a higher rate taxpayer, that means paying tax on income that’s being used to service the mortgage. Your taxable income is inflated relative to your actual cash position. Many landlords who were basic rate taxpayers before Section 24 have been pushed into the higher rate band by the way rental income is now calculated.
The consequence for CGT: a landlord who was previously a basic rate taxpayer paying 18% CGT may now be a higher rate taxpayer paying 24%. That’s an extra 6% on every pound of gain. On a £58,000 taxable gain, the difference between 18% and 24% is £3,480.
The other squeeze: a landlord whose cash flow has been eroded by Section 24 has less in reserve to absorb a CGT bill when it arrives. It’s not that the CGT has increased. It’s that the money available to pay it has decreased. That combination is why so many landlords feel trapped even when selling makes financial sense. If the Renters’ Rights Act has added to the pressure, you’re not alone.
If Section 24 has pushed you into a higher rate band, your CGT rate has effectively increased without the rate itself changing. Worth factoring into any calculation.
What You’ll Actually Walk Away With
Let’s take Frank’s example and show the full picture:
| |
|---|
| Sale price | £175,000 |
| Outstanding mortgage (assumed) | –£85,000 |
| Selling costs (agent + solicitor) | –£3,500 |
| CGT at 24% | –£13,920 |
| Net proceeds | ~£72,580 |
That's not a number to dismiss: £72,580 in cash from a property that’s been generating declining net income for years, with a boiler that needs replacing and an EPC rating that will cost money to improve. For many landlords, when the full picture is laid out, selling makes considerably more sense than the rough calculation suggested.
Run your own numbers. Talk to an accountant about your specific position. Then make the call with the actual figures in front of you, not the ones in your head. When you’re ready, our guide to the five selling routes for BTL properties covers the practical next steps.
Your accountant can give you the tax figure. The other number you need is what the property would actually sell for, and that's where we can help. Tell us about it, tenants in or not.
