Capital Gains Tax on Rental Property UK: Complete 2026 Guide

When you sell a rental property in the UK for more than you paid for it, you are liable for Capital Gains Tax (CGT) on the profit. Since April 2024, CGT rates on residential property have been 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.

CGT on rental property is one of the largest tax bills a landlord will ever face. On a property that has doubled in value, the tax could easily run to tens of thousands of pounds. Understanding how CGT is calculated, what reliefs and exemptions are available, and the strict 60-day reporting deadline is essential for every landlord planning to sell.

This guide covers everything you need to know about Capital Gains Tax on UK rental property in 2025/26: rates, calculation method, the annual exempt amount, reporting requirements, available reliefs, and strategies to legally reduce your bill. Latch tracks your property purchase costs, improvements, and expenses to help you calculate your gain accurately when you sell.

CGT Rates on Residential Property (2025/26)

From 6 April 2024, the CGT rates on residential property gains are:

These rates apply specifically to gains on residential property (including buy-to-let). They are higher than the rates for other assets (10% and 20%). The rate you pay depends on your total taxable income plus the gain.

Annual Exempt Amount

Every individual has an annual Capital Gains Tax exempt amount (also called the annual exemption). For the 2025/26 tax year, this is £3,000.

This means the first £3,000 of capital gains in a tax year is tax-free. Only the gain above £3,000 is subject to CGT.

The annual exemption is per person and cannot be transferred between spouses (though each spouse gets their own £3,000 exemption). It also cannot be carried forward — if you do not use it, you lose it.

How to Calculate Your Capital Gain

The basic CGT calculation for a rental property is:

Step 1: Determine the Sale Price (Disposal Proceeds)

This is the amount you receive from the buyer. If you sell at market value (which is almost always the case), this is the agreed sale price.

Step 2: Deduct the Purchase Price (Acquisition Cost)

This is the price you originally paid for the property. If you inherited the property, use the market value at the date of death. If you received it as a gift, use the market value at the date of the gift.

Step 3: Deduct Allowable Costs

You can deduct the following costs from your gain:

• Purchase costs: Stamp Duty paid on purchase, solicitor fees, survey fees
• Sale costs: Estate agent fees, solicitor fees for the sale, EPC if required for sale
• Improvement costs: Capital expenditure that enhanced the property (extensions, new kitchens, new bathrooms, loft conversions) — but NOT repairs or maintenance
• Costs of establishing or defending title: Legal costs relating to ownership disputes

Step 4: Deduct the Annual Exemption

Subtract the £3,000 annual exempt amount (assuming you have not used it on other gains in the same tax year).

Step 5: Calculate Tax

Apply the appropriate CGT rate (18% or 24%) to the taxable gain.

Worked Example

Sarah is a higher rate taxpayer. She bought a rental flat in 2015 for £200,000 and sells it in January 2026 for £310,000.

Sarah owes £20,268 in Capital Gains Tax. She must report this and pay within 60 days of the completion date.

The 60-Day Reporting Requirement

Since 27 October 2021, UK residents who sell a residential property that is not their main home must report the disposal and pay any CGT within 60 days of the completion date.

This applies to all rental property sales. The report is made using HMRC's CGT on UK property service (separate from your Self Assessment return). You will need:

• A Government Gateway account
• Details of the property sold (address, purchase date, sale date)
• The purchase price and sale price
• Details of all allowable costs
• Your other income for the tax year (to determine the CGT rate)

You must still include the gain on your Self Assessment tax return for the year. Any CGT already paid through the 60-day report is credited against your final liability.

Lettings Relief

Lettings relief was significantly restricted from 6 April 2020. It now only applies if you have shared occupation of the property with a tenant — meaning you lived in the property at the same time as the tenant.

For most buy-to-let landlords who never lived in the property, lettings relief is no longer available. It was abolished for the common scenario where a landlord lived in a property, moved out, and then rented it.

Principal Private Residence Relief (PPR)

If a property was your main home for any period during ownership, you may be entitled to Principal Private Residence Relief for that period. PPR exempts the gain attributable to the period the property was your main home.

Key rules:

• The final 9 months of ownership are always exempt (regardless of whether you lived there), provided you lived in the property as your main home at some point
• Periods of actual occupation as your main home are fully exempt
• You can only have one main home at a time (you may need to make an election if you own more than one residence)
• PPR is proportional: if you owned a property for 10 years and lived in it for 4 years (plus the final 9 months), approximately 47.5% of the gain is exempt

PPR Worked Example

James bought a property in 2014 for £180,000, lived in it until 2018, then rented it out. He sells in 2026 for £300,000. Total ownership: 12 years. Occupation as main home: 4 years. Final 9 months: exempt.

Strategies to Reduce CGT

There are several legal strategies to reduce or defer Capital Gains Tax on rental property:

1. Use Your Annual Exempt Amount

Ensure you use your £3,000 annual exemption each year. If selling multiple properties, consider selling in different tax years to use the exemption more than once.

2. Transfer to Spouse Before Sale

Transfers between spouses and civil partners are exempt from CGT. If you transfer 50% of a property to your spouse before selling, you can each use your £3,000 exemption (saving up to £1,440 in tax) and potentially access the basic rate CGT band.

3. Timing the Sale

If you are near the end of a tax year, consider whether completing the sale in the next tax year would allow you to use the following year's annual exemption or fall into a lower tax band (for example, if you are retiring).

4. Claim All Capital Improvement Costs

Every capital improvement you have made to the property reduces the taxable gain. Keep records of all improvements: new kitchens, bathrooms, extensions, central heating installations, double glazing, and structural work. Latch records capital expenditure separately, making this straightforward.

5. Deduct All Purchase and Sale Costs

Stamp Duty, solicitor fees, survey fees, estate agent fees — all reduce the gain. Ensure none are overlooked.

6. Consider PPR Elections

If you own multiple properties and have lived in more than one, you can elect which is your main residence. This election can be made retrospectively (within time limits) and can optimise which property benefits from PPR.

7. Pension Contributions

Making a pension contribution in the year of sale does not reduce the capital gain directly, but it reduces your income, which may mean more of the gain falls within the basic rate band (taxed at 18% instead of 24%).

CGT When Selling a Limited Company Property

If the property is held in a limited company, there is no CGT. Instead, the gain is subject to Corporation Tax at up to 25%. However, extracting the proceeds from the company triggers further tax:

• Dividends are taxed at 8.75% / 33.75% / 39.35% (on top of Corporation Tax already paid)
• Company liquidation may allow Capital Distribution treatment, taxed at CGT rates
• The total tax burden depends on how and when you extract the funds

How Latch Helps with CGT

Accurate CGT calculation depends on having complete records of purchase costs, capital improvements, and disposal costs. Latch maintains these records throughout your ownership: