How is Capital Gains Tax calculated on a rental property? You take the sale price, deduct what you paid for the rental property and your allowable buying, selling and improvement costs, then subtract the £3,000 annual exempt amount. What is left is added on top of your income for the year and taxed at 18% within your unused basic rate band and 24% above it.
For most landlords, the tax has to be reported and paid to HMRC within 60 days of completion. Getting the calculation right matters, because the wrong cost figures or the wrong rate can mean overpaying by thousands of pounds or facing penalties for underpaying. For the official rules, see GOV.UK’s guidance on tax when you sell property.
This guide walks through the calculation step by step, explains which rental property costs you can and cannot deduct, and includes a full worked example for the 2026/27 tax year.
The Formula for Capital Gains Tax on a Rental Property
Every rental property calculation follows the same five steps:
- Sale proceeds: the price you sell the rental property for, or its market value if you give it away or sell it to a connected person.
- Less acquisition costs: the original purchase price plus Stamp Duty Land Tax, solicitor and survey fees.
- Less capital improvements: spending that added something new to the property and is still reflected in it when you sell.
- Less selling costs: estate agent fees, conveyancing and the Energy Performance Certificate.
- Less reliefs and the annual exempt amount: any Private Residence Relief, capital losses and the £3,000 annual exemption.
The figure left is your taxable gain. The rate depends on your other income, which for a landlord includes your rental profits. See the current Capital Gains Tax rates for 2026/27.
Allowable Costs That Reduce Your Rental Property Gain
| Cost | Allowable for CGT? | Notes |
|---|---|---|
| Purchase price and Stamp Duty | Yes | Including legal and survey fees on purchase |
| Extension or loft conversion | Yes | Capital improvement still in place at sale |
| Estate agent and legal fees on sale | Yes | Including the EPC |
| Like-for-like kitchen or boiler replacement | No | A repair, usually claimed against rental income |
| Mortgage interest and arrangement fees | No | Not a cost of the property itself |
| Redecoration and routine maintenance | No | Revenue expenses, not capital |
Our detailed guides to expenses you can deduct and improvement costs for CGT explain the borderline cases.
Costs Already Claimed Against Rental Income
A common mistake is deducting the same cost twice. Anything you have already claimed as an expense against your rental income cannot be deducted again when you calculate the gain on the rental property. This includes repairs, redecoration and replacement of domestic items such as furniture, white goods and carpets.
The dividing line is between revenue and capital spending. Replacing a worn-out kitchen with a similar one is a repair and belongs in your rental accounts. Adding a new bathroom where there was none, or extending the property, is a capital improvement and belongs in your CGT calculation. HMRC explains the income side in its guidance on working out your rental income.
Worked Example: Basic Rate Landlord Selling a Rental Property
Helen earns a salary of £28,000 and makes a rental profit of £8,000 a year. She bought a rental property in 2014 for £170,000, paying £3,200 in Stamp Duty and legal fees. In 2019 she added a rear extension costing £18,000 and replaced the boiler for £3,500. She completes the sale in September 2026 for £285,000, paying £4,920 in agent and legal fees.
Work out the gain
The boiler was a like-for-like replacement already claimed against rental income, so it is excluded.
£285,000 − £4,920 − £170,000 − £3,200 − £18,000 = £88,880.
Deduct the annual exempt amount
£88,880 − £3,000 = £85,880 taxable gain.
Find the unused basic rate band
Helen’s total income is £36,000, including her rental profit. After the £12,570 personal allowance, her taxable income is £23,430. Her unused basic rate band is £37,700 − £23,430 = £14,270.
Apply the 18% and 24% rates
£14,270 × 18% = £2,568.60
£71,610 × 24% = £17,186.40
Total Capital Gains Tax: £19,755, payable within 60 days of completion.
For more scenarios, see our capital gains tax worked examples.
How Your Rental Income Affects the CGT Rate
Because the 18% rate only applies to gains that fit within your unused basic rate band, your rental profits matter. Every pound of rental profit uses up basic rate band that could otherwise shelter part of the gain at the lower rate. In Helen’s example, her £8,000 rental profit costs her £480 in extra CGT, because £8,000 of gain moves from 18% to 24%.
This is one reason landlords sometimes time a sale for a year when other income is lower, or make a personal pension contribution to extend the basic rate band. Higher rate landlords pay 24% on the whole taxable gain. Read more in our guide for higher rate taxpayers.
Jointly Owned Rental Property
If you own the rental property jointly, each owner calculates CGT on their share of the gain. Each owner has their own £3,000 annual exempt amount and their own basic rate band. Married couples and civil partners can transfer shares between themselves on a no gain, no loss basis before a sale, which can reduce the overall bill. See CGT on jointly owned property.
If the Rental Property Was Once Your Home
If you lived in the rental property as your main residence at any point, part of the gain may be exempt under Private Residence Relief. The periods you lived there, plus the final nine months of ownership, are tax-free. The rest of the gain is taxable.
Lettings relief is now very limited. Since April 2020, it only applies where you shared occupation of the property with your tenant. Find out more about Private Residence Relief and lettings relief eligibility.
Reporting and Paying CGT on a Rental Property
For a UK rental property, you must report the sale and pay the tax within 60 days of completion using an HMRC UK property account. If you complete self assessment returns, the gain must also go on your return for the tax year, where any overpayment or underpayment is corrected.
Missing the 60-day deadline triggers late filing penalties and interest. HMRC’s guidance on reporting and paying Capital Gains Tax explains the process, and our guide to reporting UK property CGT in 60 days walks you through it.
Getting Specialist Help With Your Rental Property Sale
Rental property calculations often involve decades-old purchase records, mixed periods of occupation, jointly owned shares and costs that have to be split between income and capital. Each of these can change the final figure significantly.
Our ACCA-qualified team at Capital Gains Tax Experts calculates your gain accurately, identifies every relief and allowable cost, and files your 60-day return on time. If you are still deciding whether to sell, our guide to selling a buy-to-let property sets out the main planning strategies.
Frequently Asked Questions
How much capital gains tax will I pay on my rental property?
You pay 18% on the part of your taxable gain that fits within your unused basic rate band and 24% on the rest, after deducting allowable costs and the £3,000 annual exempt amount. A higher rate taxpayer with a £50,000 gain would pay £11,280 (£47,000 × 24%).
How can I avoid capital gains tax on a rented property?
You cannot avoid CGT on a genuine gain, but you can reduce it legally. Claim every allowable cost, transfer a share to a lower-earning spouse before exchange, use capital losses, make a pension contribution to extend your basic rate band, and claim Private Residence Relief for any period you lived there.
How do I calculate the capital gains tax on the sale of my second property?
Deduct the purchase price, buying and selling costs and capital improvements from the sale price. Subtract the £3,000 annual exemption, then apply 18% to the part within your unused basic rate band and 24% to the rest. Report and pay within 60 days of completion.
How do I calculate capital gains from the sale of a house or property?
Your capital gain is the sale price minus the original cost and allowable expenses. If the house was your only or main home throughout, the gain is usually fully exempt under Private Residence Relief. Second homes and rental properties are taxable.
Does HMRC check capital gains?
Yes. HMRC receives Land Registry and conveyancing data and uses its Connect system to match property sales against tax returns. Unreported rental property sales often lead to nudge letters, compliance checks, penalties and interest.
Conclusion
Calculating Capital Gains Tax on a rental property comes down to four things: the right base cost, the right allowable costs, the right reliefs and the right rate. With the annual exempt amount at only £3,000 and rates of 18% and 24%, small errors in any of these can be expensive.
Keep records of your purchase, improvements and selling costs, separate revenue repairs from capital improvements, and plan the timing of your sale with your other income in mind.
For an accurate figure on your rental property, contact our team at Capital Gains Tax Experts. Call us on +44 (0)1204 859315 or try our free CGT calculator to get an instant estimate.
