Capital gains tax on property – a guide for landlords

If you chose to sell a rental property, it’s likely you’ll need to pay capital gains tax (CGT). This tax is charged on the profit you make from selling the property.

The number of people paying CGT is expected to rise to 570,000 for the 2024-25 tax year, up from 188,000 in 2010-11, according to official figures.

With this in mind, it’s important for landlords to understand how capital gains tax on UK property works and when they need to pay it.

Read our guide to landlord capital gains tax for information on:

when landlords have to pay capital gains tax
the capital gains tax allowance for landlords
the capital gains tax rates for selling property
how to work out capital gains tax on property
how to pay capital gains tax as a landlord
capital gains tax – landlord FAQs
paying capital gains tax on commercial property

When do landlords have to pay capital gains tax?

Capital gains tax applies when you dispose of assets, such as a property.

You don’t pay capital gains tax when you sell your main home, unless you’ve rented it out or used it for business.

So capital gains tax mainly applies to landlords who invest in property and let it to tenants, before eventually selling.

What is the capital gains tax allowance for landlords?

The capital gains tax allowance of £3,000 is the maximum amount of profit you can earn from selling your property without having to pay tax. To put it another way – you’ll pay tax on profits that exceed your allowance.

You don’t need to pay capital gains tax if your total gains fall within your allowance. If your gains are more than £3,000, you pay tax on the difference.

In recent years, the tax-free CGT allowance has been gradually lowered from £12,300 to £3,000. A lower tax-free allowance means landlords will have to pay more capital gains tax when they sell.

The government estimates that the allowance reduction from £12,300 to £3,000 will mean 260,000 taxpayers will be brought into the scope of CGT for the first time, many of whom could be landlords.

How much is capital gains tax on property?

The rate of capital gains tax you pay when you sell a property depends on your tax band.

If you’re a basic rate taxpayer, you pay CGT at 18 per cent. If you’re a higher or additional rate taxpayer, you pay the higher capital gains tax rate of 24 per cent

It’s important to note that basic rate taxpayers have to work out whether their gains get pushed above the basic tax band.

Work out your capital gains tax by:

calculating your total taxable income, applying your income tax allowance and any reliefs
adding your total gains (minus your capital gains tax allowance) to your total income
if the total is within the basic income tax band, you pay 18 per cent
you pay 24 per cent on any gains above the basic tax band

How to work out capital gains tax in 3 steps

Here’s the three steps you’ll need to follow to work out capital gains tax on a residential property:

Step 1 – calculate your gain: the difference between how much you paid for the property and how much you sold it for. You might have to use the property’s market value in some scenarios, for example if it was a gift, you sold it for less than it’s worth to help the buyer, or you inherited it.

Step 2 – deduct costs: subtract certain costs related to selling or improving the property from your gain. These can include estate agent fees, as well as renovations like extensions.

Step 3 – consider tax reliefs: if the property was a business asset, some business tax reliefs may apply. Otherwise, you could get Private Residence Relief if the property was your main home, or a dependent relative lived in the property.

Allowable deductions for capital gains tax

The allowable expenses for capital gains tax on rental property are broken down into three categories:

Sale costs – which can include legal fees and estate agents’ fees
Acquisition costs – which can include solicitor’s fees and stamp duty
Improvement costs – which can include the cost of an extension, but not maintenance costs like decorating

Capital gains tax UK property calculator

The government website has a capital gains tax on property calculator that you can use to work out if you need to report and how much you need to pay.

Capital gains tax example – basic rate taxpayer

You sold an investment property in September 2024 for £250,000, after originally buying it for £185,000.

Your total costs when buying, selling, and improving the property add up to £10,500.

Your selling profit of £65,000 minus costs leaves you with a total gain of £54,500.

Your total gain minus your tax-free capital gains tax allowance of £3,000 leaves you with a taxable gain of £51,500.

Your annual income is £38,000, which means you pay the basic rate of income tax.

As a result, you pay £2,209 at 18 per cent tax on £12,270 of your taxable gain that falls within the basic income tax rate, plus £9,415 at 24 per cent on the remaining £39,230 that falls within the higher income tax rate.

This leaves you with a final CGT bill of £11,624.

Capital gains tax example – higher or additional rate taxpayer

You sold an investment property in September 2024 for £525,000, after originally buying it for £288,000.

Your total costs when buying, selling, and improving the property add up to £20,000.

Your selling profit of £237,000 minus costs leaves you with a total gain of £217,000.

Your total gain minus your tax-free capital gains tax allowance of £3,000 leaves you with a taxable gain of £214,000.

Your annual income is £65,000, which means you pay the higher rate of income tax.

As a result, you pay £51,360 at 24 per cent on the taxable gain of £214,000.

How to pay capital gains tax when selling a property

Since October 2021, if you sell a property that’s not your main home you’ll need to report and pay your capital gains tax within 60 days of the sale.

You can use a ‘Capital Gains Tax on UK property account’ to report your gain and pay your bill. You can also use this account to view previous CGT returns.

When reporting and paying your capital gains tax bill, you’ll need information such as:

when you bought or came into ownership of the property
when you sold the property (exchange and completion date)
how much you bought the property for (or how much it was worth when you became its owner)
the value of the property when you sold it
the costs you incurred when buying, selling, or improving the property
any tax allowances, exemptions, or reliefs you’re entitled to

Property capital gains tax – landlord FAQs

Understanding capital gains tax on a property sale can be tricky, so here are some answers to some frequently asked questions.

Do you pay capital gains tax if you reinvest in another property?

Put simply, yes, you’ll have to pay capital gains tax on your sale even if you’re planning to buy another investment property right away.

Do you have to pay capital gains tax on inherited property?

If you inherit a property that increases in value, you’ll be liable to pay CGT when you sell it. To work out the gain, you’ll need to get a valuation for how much the property was worth when you inherited.

To avoid paying CGT on an inherited property, you could:

dispose of the property immediately – if you sell or gift the property as soon as you’ve been given it, you won’t need to pay CGT
live in the property – if you make the property your principal residence for the entire time you’ve owned it, you won’t need to pay CGT when you sell

How long do you have to live in a property to avoid capital gains tax?

If, as outlined above, you decide to make a property your main residence to avoid paying capital gains tax, you’ll need to live there for at least a year.

Crucially, you’ll have to have lived there for the whole of the time you’ve owned if you don’t want to pay any CGT.

HMRC considers a property to be your main residence if you spend most of your time there and are registered to vote there.

Do you have to pay capital gains tax on commercial property?

If you sell a commercial property for a profit, you’ll need to pay capital gains tax.

However, there’s an exception if the property is held and sold through a limited company. In that case, you’ll pay corporation tax rather than capital gains tax.

How much you’ll pay will depend on your tax band (10 per cent for basic rate taxpayers, 20 per cent for higher and additional rate taxpayers).

The CGT rate due on a commercial property is less than what you’d need to pay when selling a residential property.

Do you have any unanswered questions on paying capital gains tax when selling a property? Let us know in the comments below.

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