Capital Gains Tax When Selling a Rental Property UK

How much CGT will I pay?

The CGT rate depends on your total taxable income. From April 2024, the rates for residential property are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.

Your gain is added to your income to determine which rate applies. If the gain pushes you into a higher band, part may be taxed at 18% and part at 24%.

How to calculate the gain

Your taxable gain is the sale price minus purchase price, minus allowable costs, minus your annual CGT allowance.

1. Start with the sale price - The amount you receive on completion
2. Subtract the purchase price - What you originally paid (or market value if inherited/gifted)
3. Subtract allowable costs - Purchase costs, sale costs, and qualifying improvements
4. Apply any reliefs - Private Residence Relief, lettings relief if applicable
5. Subtract the annual allowance - £3,000 for 2024/25 tax year
6. Calculate tax at the appropriate rate - 18% or 24% depending on your income

What costs can I deduct?

You can deduct costs directly related to buying, improving, and selling the property. Day-to-day maintenance and repairs don't qualify.

Key distinction: Improvements that enhance the property's value are deductible. Repairs that restore it to its original condition are not. Replacing a kitchen with a like-for-like version is repair; upgrading to a higher spec kitchen is improvement.

What is Private Residence Relief?

Private Residence Relief (PRR) exempts the portion of gain relating to the time the property was your main home. You also get automatic relief for the final 9 months of ownership.

If you lived in the property before letting it out, PRR is calculated as:

PRR = Total Gain × (Months as main home + Final 9 months) ÷ Total months owned

For example, if you owned a property for 10 years (120 months), lived in it for 3 years (36 months), then let it for 7 years:

• Qualifying period: 36 months + 9 months = 45 months
• PRR covers 45/120 = 37.5% of the gain
• Only 62.5% of the gain is taxable

The 60-day reporting deadline

You must report and pay CGT on UK residential property within 60 days of completion. This applies even if you file a Self Assessment tax return.

The 60-day deadline runs from the completion date (when ownership transfers), not the exchange date. You report through a UK Property Account on HMRC's website.

Late filing penalties:

• Up to 6 months late: £100 fixed penalty
• 6-12 months late: £300 or 5% of tax due (whichever is higher)
• Over 12 months late: Up to 100% of tax due in serious cases

Interest is charged on late payment from 60 days after completion until payment is received.

CGT allowance and how it works

The annual CGT allowance for 2024/25 is £3,000 per person. This is the amount of gain you can make tax-free each year.

If you own the property jointly with a spouse or civil partner, you each have a £3,000 allowance—reducing the taxable gain by £6,000 in total.

The allowance has reduced significantly in recent years:

• 2022/23: £12,300
• 2023/24: £6,000
• 2024/25: £3,000

You can't carry forward unused allowance to future years.

Selling with a tenant in place

You can sell a property with a tenant in place. The tenancy transfers to the new owner, and this doesn't affect your CGT calculation.

However, selling with a sitting tenant typically means:

• Lower sale price (often 10-20% discount)
• Smaller pool of buyers (mainly investors)
• Faster transaction (no chain issues)

The lower sale price does reduce your CGT bill, but you need to weigh this against the reduced sale proceeds. Sometimes it's worth waiting for the tenancy to end to achieve vacant possession value.

Transferring to a limited company

Transferring a property from personal ownership to a limited company triggers CGT as if you sold it at market value—even though no money changes hands.

The tax implications include:

• CGT on the transfer: Calculated on market value minus original purchase price
• Stamp Duty: The company pays SDLT on the market value (including 5% surcharge for companies owning 10+ properties)
• Mortgage: Most lenders won't transfer; you'll need a new company mortgage

This structure mainly benefits landlords affected by Section 24 mortgage interest restrictions, where the ongoing Corporation Tax savings outweigh the upfront transfer costs.