Capital gains tax when you sell a rental

UK-wide for capital gains tax. Possession law referenced is England only.

How the gain is worked out

Step	Example
Sale price	£320,000
Less purchase price	−£200,000
Less buying costs — stamp duty, legals, survey	−£13,500
Less selling costs — agent, legals	−£5,500
Less capital improvements	−£18,000
Gain	£83,000
Less annual exempt amount	−£3,000
Taxable gain	£80,000
Tax at 24% (higher-rate taxpayer)	£19,200

Which rate applies

The gain is stacked on top of your income for the year. Whatever falls within your remaining basic rate band is taxed at 18%; everything above it at 24%.

So a basic-rate taxpayer with a large gain will pay 18% on the slice that fits and 24% on the rest, and a higher-rate taxpayer pays 24% throughout. A year with unusually low income — a career break, a gap between jobs, retirement — can therefore be a materially cheaper year to sell, which is worth planning around when you have the choice.

The 60-day rule

For a UK residential property disposal producing a gain, you must file a Capital Gains Tax on UK property return and pay the estimated tax within 60 days of completion. This is separate from, and additional to, reporting it on your annual self assessment return.

The reliefs that apply

Relief	When it applies
Private residence relief	Where the property was your only or main home for part of your ownership. The gain is apportioned, and the final 9 months of ownership count as a qualifying period even if you had moved out.
Lettings relief	Heavily restricted since April 2020. It now applies only where you shared occupation of the property with the tenant. Most landlords who once expected it no longer qualify.
Transfers between spouses	No gain, no loss between married couples and civil partners living together. Transferring a share before sale can use two annual exempt amounts and two basic rate bands.
Capital losses	Losses on other chargeable assets can be set against the gain, and unused losses carry forward indefinitely if you have reported them.
Incorporation relief	Can defer the gain on a transfer into a company, but only where a genuine property business is transferred as a going concern.

What reduces the bill, legitimately

• Find the improvement invoices. Extensions, new bathrooms, loft conversions, driveways, double glazing where it was an upgrade. This is usually the largest single lever and the one most often lost to poor record keeping.
• Use both annual exempt amounts where the property is jointly owned, and consider a spousal transfer where it is not.
• Time the disposal. A gain straddling two tax years is not possible, but choosing which tax year to complete in can be, and it can move the whole gain into a lower-income year.
• Report your losses. Losses must be claimed to be usable, generally within four years of the end of the tax year in which they arose.
• Check private residence relief carefully if you ever lived there, including the final nine months.

Selling with a tenant in place

Tax is only half the problem. Since section 21 was abolished, obtaining vacant possession to sell means using Ground 1A, which cannot be used in the first twelve months of a tenancy, requires four months’ notice, and prevents re-letting for twelve months afterwards.

Selling with the tenant in situ avoids all of that, but narrows the buyer pool to investors and usually costs something on price. The trade-off is a real one, and it should be decided before the property goes on the market rather than after an offer falls through. Our guide to selling tenanted versus empty works through both routes.

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