Guide · 9 min read
Capital gains tax when you sell a rental
Sell a rental for more than it cost you and the gain is taxed. Here's how the gain and the tax are worked out, when to pay, and what can lower the bill.
On this page
The example
Overview
Selling a rental for more than it cost you means capital gains tax on the gain, and it's due within weeks of completion, not with your tax return. How much you pay depends on your income in the year you sell, whether you ever lived there and who owns it. To show the numbers, this guide follows one example, a house let for £1,100 a month and then sold for £180,000, set out below.
Key points
- The gain is the price you sell for, less the price you paid, the costs of buying and selling, and any Repairs or improvementsA repair puts back what was there (fixing a roof, a like-for-like kitchen) and comes off the rent before tax. An improvement makes the property better than it was (an extension, a new bathroom where there wasn't one) and comes off the gain when you sell instead..
- The first £3,000 of gains each Tax year6 April to 5 April. Your rent and costs are added up for each tax year, and the tax return for it is due online by 31 January after it ends. is tax-free.
- The rest is taxed at 18% while it fits in your Income tax bandsIn England and Wales: no tax on the first £12,570 (the personal allowance), 20% basic rate up to £50,270, 40% higher rate up to £125,140 and 45% above. Rent is added to your other income, so it's taxed at your top rate. From April 2027, property income has its own rates: 24%, 44%, 49%. and 24% above it.
- On the example, the gain costs a higher-rate taxpayer £6,480 and a basic-rate taxpayer £5,892.
- You report the sale and pay the tax within 60 days of completion. If you once lived there, or own it with your partner, the bill can be much lower.
How do you work out the gain on a rental property?
The gain is what you sell for, less what the property cost you. These count as cost:
- The price you paid, or its value when you were given it or inherited it. If your husband, wife or civil partner gave it to you, it's what it cost them instead.
- Buying costs: Stamp dutyThe tax on buying a home in England (Stamp Duty Land Tax): 0% up to £125,000, 2% to £250,000, 5% to £925,000, 10% to £1.5 million and 12% above, each rate on the part of the price in its band. A buy-to-let or second home pays 5% more in every band, and buyers who don't live in the UK pay 2% more. and the solicitor's and surveyor's fees.
- Selling costs: the estate agent's and solicitor's fees.
- Improvements that are still there when you sell, such as an extension or a loft conversion.
These don't count: repairs and redecorating, which you claim against the rent instead, mortgage interest, and the running costs of letting. Paying off the mortgage doesn't change the gain either; it just comes out of the sale price.
| Sold for | £180,000 |
| Less the price paid | £140,000 |
| Less buying costs | £6,000 |
| Less selling costs | £4,000 |
| Gain | £30,000 |
|---|
What are the capital gains tax rates on property?
After a tax-free allowance of £3,000, gains are taxed at 18% or 24%, depending on how much of your basic rate band is left. The allowance, called the annual exempt amount, is per person, not per property, and what you don't use is lost at the end of the tax year.
The gain left after the allowance is added on top of your taxable income for the year, rental profit included, and the part that fits in what's left of your basic rate band pays the lower rate. If your income is over the Personal allowanceThe income you can have each tax year before paying income tax: £12,570. It falls by £1 for every £2 of income above £100,000, so it's gone at £125,140., that's the gap between your income and £50,270. The personal allowance itself only covers income, not gains.
| Tax year | Tax-free allowance | In the basic rate band | Above it |
|---|---|---|---|
| From 6 April 2024 | £3,000 | 18% | 24% |
| From 6 April 2023 | £6,000 | 18% | 28% |
| Before 6 April 2023 | £12,300 | 18% | 28% |
The rates depend on the tax year in which you Exchange of contractsThe point a purchase becomes legally binding. The buyer pays the deposit, the completion date is fixed, and backing out after it means losing the deposit., not the day you complete.
How much capital gains tax will you pay?
Your income decides it, because only the part of the gain that fits in your basic rate band gets the lower rate. On the example's £30,000 gain, a basic-rate seller pays £5,892 and a higher-rate seller £6,480. Each seller's rental profit for the year counts as income too. Mortgage interest isn't taken off it, because landlords get a Tax credit for mortgage interestThe 20% of your mortgage interest and fees that comes off your income tax bill under Section 24. It's worked out on the interest, the profit or the income above your personal allowance, whichever is smallest, and any left over carries forward. for the interest instead, and that doesn't free up any of the band.
| Figure | Basic-rate seller £30,000 salary | Higher-rate seller £60,000 salary |
|---|---|---|
| Gain | £30,000 | £30,000 |
| Tax-free allowance | £3,000 | £3,000 |
| Taxed at 18% | £9,798 | £0 |
| Taxed at 24% | £17,202 | £27,000 |
| Capital gains tax | £5,892 | £6,480 |
| Left from the sale after selling costs, the £135,000 mortgage and the tax | £35,108 | £34,520 |
The basic-rate seller pays the lower rate on only £9,798, because that's all the basic rate band their salary and rent leave. The rest of the gain is taxed at 24%, as it is for the higher-rate seller. A gain is often big enough to push a basic-rate taxpayer into the higher rate for the year it's made.
Set the tax aside before spending what's left from the sale, as it's due within weeks, not at the end of the tax year. The capital gains tax calculator works it out for your own sale.
Do you pay less if you used to live there?
Usually, because Private residence reliefThe relief that keeps your own home free of capital gains tax. For a home you lived in and later let, the years you lived there are covered, and so are the last 9 months you owned it. Lettings relief now only helps if you lived there with your tenant. takes the years it was your main home off the gain. The last 9 months you owned it count as lived in too, even if it was let by then.
Say you lived in the example house for the first 3 of the 10 years, then let it.
| Counts as lived in (3 years and the final 9 months) | 37.5% of the time |
|---|---|
| Gain that's tax-free | £11,250 |
| Gain left to tax | £18,750 |
| Tax, higher-rate seller | £3,780 |
| Tax, basic-rate seller | £3,192 |
Letting relief, which used to cut the gain further on a former home that was let, now only applies if you lived there at the same time as your tenant. Some time away, such as working elsewhere, can count as lived in. HMRC sets out the rules.
How does owning it with a partner change the bill?
If you own the house jointly, each of you pays tax on your share of the gain, with your own tax-free allowance and your own basic rate band. Owned half each by the example's two sellers, the gain costs £2,160 and £2,880, so £5,040 between them, or £1,440 less than if the higher-rate seller owned it alone.
Married couples and civil partners who live together can give each other property, or a share of it, without any capital gains tax. It has to be a real gift, so the share, its rent and its sale price belong to the partner from then on. See Owning a buy-to-let with your partner.
When do you pay capital gains tax?
For a UK home or rental, the tax is due within 60 days of completion. It doesn't wait for your tax return.
- Within 60 days of completion, report the sale to HMRC online with a UK property return and pay the tax you've worked out. Miss it and there are penalties and interest.
- The tax year is set by when you exchange contracts. Exchange on 1 April and complete on 10 April, and the gain falls in the earlier tax year.
- On your tax return as well. If you fill in a Self Assessment return, include the sale there too, by 31 January 2028 for a sale this tax year. The 60-day payment used a guess of your income; the return settles the final bill, so you pay a little more or get some back.
- No tax, no 60-day return, if you live in the UK. If the gain is within your allowance, or you sold at a loss, there's nothing to report straight away. Record a loss on your tax return, so it can come off later gains. If you're not UK resident, you must report every sale within 60 days, even with no tax to pay.
How can you pay less capital gains tax?
Claim every cost, and time the sale so more of the gain falls in a lower band.
- Find every cost. Stamp duty, legal fees and improvements all come off the gain, so dig out the completion statement from when you bought.
- Pick the tax year. In a year when your income is lower, such as after you retire, more of the gain fits in the basic rate band.
- Spread sales out. Selling two properties in different tax years uses two years' allowances and bands.
- Use losses. A loss on another property or investment in the same year, or one you reported in an earlier year, comes off the gain.
- Pay into a personal pension. Contributions widen your basic rate band, so more of the gain is taxed at 18%. The calculator doesn't work this out yet.
What if you inherited the property?
You only pay on the rise in value since the person died, because your starting cost is the property's value at their death, the probate value. A sale soon after usually leaves a small gain, and if the probate value was set too high and you sell for less, the loss can come off other gains. Executors who sell get their own tax-free allowance while the estate is being sorted out.
What if a company owns it?
A company doesn't pay capital gains tax. Its gain is added to its profit for the year and pays Corporation taxThe tax a company pays on its profit: 19% up to £50,000, 25% above £250,000, and a rate in between from marginal relief. Companies you control share the limits., with no tax-free allowance. If a company had owned the example house, the £30,000 gain would add about £5,700 to its corporation tax bill. A company that bought before December 2017 pays a little less, because it can take off an allowance for inflation up to then. The rest is still the company's money, and paying it to you as a dividend costs Dividend taxThe tax you pay on money a company pays you out of its profit after corporation tax. The first £500 a year is tax-free, then it's 10.75% in the basic band, 35.75% in the higher band and 39.35% above. Money you lent the company comes back tax-free. as well. See Corporation tax for property companies.
Common questions
Do you pay capital gains tax if you give a property away?
Yes, unless you give it to your husband, wife, civil partner or a charity. A gift to anyone else, such as your child, is taxed as if you'd sold it at market value, though no money changes hands. The same goes for selling it cheaply to help the buyer. Any tax is due within 60 days.
Can you avoid capital gains tax by buying another property?
No. Putting the money into another rental doesn't put off the tax. Rollover relief only covers property used in a trade, and letting houses or flats isn't one. Furnished holiday lets used to count, but that ended on 6 April 2025. So the tax on a sale is due within 60 days, whatever you buy next.
Does capital gains tax go down the longer you own a property?
The rates are the same whether you've owned it for two years or twenty. Taper relief, which used to shrink the taxable gain the longer you held an asset, ended for sales from 6 April 2008, and individuals get no allowance for inflation either. A long hold usually just means a bigger gain.
Do non-residents pay capital gains tax on UK property?
They have since 6 April 2015, when sales of UK homes by people living abroad came into the tax. If you owned it before then, you can usually count only the rise since that date. You must report every sale within 60 days, even with no tax to pay. The country you live in may tax it too.
Figures from our calculator, on the rules in force today, checked against GOV.UK and the Welsh Revenue Authority on 31 October 2026. Not financial or tax advice: check your own case with an accountant.