Capital Gains Tax on Property: 2026/27 Guide

If you sell a rental property for more than you paid for it, you'll usually owe Capital Gains Tax (CGT) on the profit. For landlords this is one of the most consequential, and most commonly mishandled, areas of property tax: the rules are not difficult to understand, but the strict 60-day reporting deadline catches out a surprising number of people, and the reliefs available are often missed entirely. This guide walks through how CGT on residential property works, how to calculate your gain, what reliefs you might be entitled to, and the deadline you absolutely cannot afford to miss.

When does CGT apply?

CGT is a tax on the profit (the "gain") you make when you dispose of an asset that has increased in value. For landlords, this typically means selling a buy-to-let property, but it can also apply to gifting a property, transferring it into a company, or other disposals. It does not apply to your only or main home, thanks to Private Residence Relief (more on that below), but it does apply to any residential property that either was never your main home, or was your main home for only part of the time you owned it.

This means most rental properties will trigger a CGT liability on sale, and it's worth planning for well before you put a property on the market, not after the sale has completed.

How the gain is calculated

At its simplest, your gain is the difference between what you sell the property for and what you paid for it, adjusted for certain costs along the way. The basic formula is:

"Allowable costs" is the part that catches people out, because not every cost you've incurred over the years can be deducted. The costs you can usually include are:

• Purchase costs: legal fees and the Stamp Duty Land Tax (SDLT) you paid when you bought the property.
• Sale costs: estate agent fees and legal fees incurred on the sale.
• Costs of genuine improvements: money spent adding something that wasn't there before, such as an extension, a loft conversion, a new kitchen where there wasn't one, or rewiring an unwired property. These add to the property's value and so reduce your taxable gain.

What you generally cannot deduct is routine maintenance and repairs: repainting, fixing a broken boiler, replacing a worn carpet with a similar one, or general upkeep. These are treated as costs of running the property day to day (and may already have been claimed as rental expenses against your income tax), not as costs of acquiring or enhancing the asset itself. The distinction between "improvement" and "repair" can be subtle in practice, so keep clear records, invoices and dates for anything you believe counts as a genuine capital improvement.

The current CGT rates on residential property

Following the changes announced in the October 2024 Budget, gains on residential property are taxed at:

• 18% for gains that fall within your basic-rate band
• 24% for gains that fall above the basic-rate threshold (i.e. for higher and additional-rate taxpayers)

Which rate applies depends on your total taxable income for the year plus the gain. If adding the gain to your income pushes you across the basic-rate threshold, the gain itself is split: the portion that sits below the threshold is taxed at 18%, and the portion above it is taxed at 24%. In other words, you don't necessarily pay one single rate on the whole gain, you may pay a blend of the two depending on exactly where it falls relative to your other income.

The annual exempt amount

Each individual has an annual exempt amount for CGT, which for 2026/27 is £3,000. This is deducted from your total taxable gains for the year before any tax is calculated, so if your gains (after costs and any reliefs) are £3,000 or less, you won't pay any CGT at all. If you own a property jointly, each owner has their own £3,000 allowance against their share of the gain, which can make joint ownership a useful, and entirely legitimate, way to reduce a combined tax bill.

Private Residence Relief: when part of the gain is tax-free

If a property was your only or main home for some of the time you owned it, before you turned it into a rental, for example, you may be entitled to Private Residence Relief (often shortened to PRR or PPR). This relief works on a simple principle: the proportion of your ownership period during which the property was your main home is, broadly speaking, exempt from CGT. There's also a "final period exemption" which treats the last period of ownership as exempt regardless of how the property was actually used during that time, recognising that people don't always sell a property the moment they move out.

In practice, PRR is calculated proportionally: you compare the number of months the property qualified as your main residence (including the final-period exemption) against the total number of months you owned it, and that fraction of your gain is relieved from tax. The remaining fraction, relating to the period it was let out or otherwise not your main home, is what's potentially taxable.

A worked example

Suppose you bought a flat for £180,000 some years ago, lived in it as your main home for a period, then let it out, and have now sold it for £280,000. Your raw gain before costs and relief is £280,000 − £180,000 = £100,000. Say you also had £4,000 of purchase costs (legal fees and SDLT), £6,000 of sale costs (estate agent and legal fees), and £5,000 of genuine improvement costs (a new kitchen extension). Deducting these £15,000 of allowable costs brings your gain down to £85,000.

Now suppose the property was your main home for 60 of the 120 months you owned it. Including the final period as exempt, let's say 66 of those 120 months qualify for Private Residence Relief. That's 55% of your ownership period, so 55% of the £85,000 gain, £46,750, is relieved entirely. The remaining 45%, £38,250, is potentially taxable.

From that £38,250, you deduct your annual exempt amount of £3,000, leaving a taxable gain of £35,250. If your income for the year means the whole gain falls within the higher-rate band, it would be taxed at 24%, giving a CGT bill of £8,460. If instead some of it fell within your remaining basic-rate band, that portion would be taxed at 18% and the rest at 24%, giving a slightly lower overall bill. Either way, this is the figure you would need to report and pay within 60 days of completion. You can work through your own numbers, including PPR relief and a clear reminder of the reporting deadline, using our Capital Gains Tax (Property) Calculator.

Practical planning points

• Use your annual exemption every year. Unlike some allowances, the £3,000 annual exempt amount cannot be carried forward, if you don't use it in a tax year, it's gone. If you're planning to dispose of more than one asset, spreading disposals across different tax years can mean using more than one year's exemption.
• Think about timing. The tax year in which you complete a sale, and your income in that year, both affect how much of your gain is taxed at 18% versus 24%. Completing a sale in a year when your other income is lower can sometimes reduce the overall bill.
• Keep records of improvement costs as you go. Don't wait until you're selling to try to reconstruct what you spent on a kitchen extension a decade ago. Keep invoices, dates, and descriptions of any capital improvement work at the time you pay for it.
• Get advice for anything complex. Periods of mixed use, properties owned jointly with changing shares, properties that have been your home at different points, and disposals involving companies or trusts can all complicate the calculation considerably. A property tax specialist can make sure you claim everything you're entitled to and meet every deadline.