Capital Gains Tax on Rental Property in 2026/27: Rates, the 60 Day Rule and 7 Ways to Pay Less
Selling a buy to let is one of the biggest tax events in a landlord’s life, and capital gains tax on rental property is where years of house price growth finally meet HMRC. With the annual exempt amount now just £3,000 and rental profits under growing pressure, more landlords are selling than at any point in years, and many are discovering two things too late: the bill is larger than they guessed, and the deadline to report it is a startling 60 days.
At Sepera Accounting, a London practice with a large landlord and property investor client base, property disposals are bread and butter work. This guide sets out how capital gains tax on rental property actually works in 2026/27: the rates, a worked example you can follow with your own numbers, the 60 day reporting rule, and the legitimate reliefs and choices that reduce the bill when they’re used before completion rather than after.
How Capital Gains Tax on Rental Property Works
Capital gains tax is charged on the profit you make when you dispose of an asset, and a rental property is the classic example. The taxable gain is broadly what you sold for, minus what you paid, minus certain costs and improvements, minus your annual exempt amount. Disposal means more than just selling: gifting a rental property to anyone other than your spouse or civil partner is a disposal at market value, which surprises parents planning to pass property to children more than almost any other rule.
Two boundaries define this guide. First, capital gains tax on rental property is separate from the income tax you pay on rent each year; the annual side, including the Section 24 mortgage interest rules and the property income rate changes coming in April 2027, is covered in our landlord tax guide. Second, this article covers property owned personally; company held property follows different rules, covered briefly below.
Capital Gains Tax on Rental Property: 2026/27 Rates and Allowance
| Item (2026/27) | Figure |
|---|---|
| CGT rate within your basic rate band | 18% |
| CGT rate above the basic rate band | 24% |
| Annual exempt amount | £3,000 per person |
| Reporting and payment deadline for UK residential property | 60 days from completion |
The rate you pay depends on your income in the year of sale. The gain is stacked on top of your taxable income: any part that fits within your unused basic rate band is taxed at 18%, and the rest at 24%. Because a property gain is usually large, most landlords pay 24% on most of it, and a gain can drag someone who is normally a basic rate taxpayer into the 24% rate for the sale year. Note the allowance too: at £3,000 it shelters very little of a property gain, which makes the reliefs later in this guide matter far more than the allowance itself.
One piece of good news worth stating: capital gains tax on rental property only taxes the gain, never the proceeds. Sell for £260,000 and the tax touches only the slice above what the property cost you, after every allowable expense. Landlords sometimes delay a sensible sale believing a quarter of the sale price is at stake; the real figure is a quarter of the growth at most, and usually less once the reliefs below have done their work.
How to Calculate Capital Gains Tax on Rental Property: A Worked Example
The fastest way to understand capital gains tax on rental property is to watch it calculated once. Meet a landlord selling a buy to let she has owned for twelve years:
- Sale price: £260,000, with selling costs (agent and solicitor) of £4,000
- Purchase price: £180,000, with buying costs (solicitor, survey, stamp duty) of £3,000
- Capital improvements: a £13,000 extension (repairs and redecoration don’t count here; they belonged on her rental accounts in the years she paid for them)
The gain: £260,000 minus £4,000 selling costs, minus £180,000 purchase price, minus £3,000 buying costs, minus £13,000 improvements leaves £60,000. Deduct her £3,000 annual exempt amount and £57,000 is taxable. As a higher rate taxpayer she pays 24%, so the bill is £13,680, due within 60 days of completion.
Notice what did the heavy lifting: £20,000 of costs and improvements came off the gain before tax touched it. This is why record keeping is a tax strategy in itself. Every solicitor’s bill, stamp duty receipt and builder’s invoice from the whole ownership period reduces capital gains tax on rental property at 18% or 24%, and the sales we see overpay tax on are almost always the ones where paperwork from a decade ago has vanished.
The 60 Day Rule: The Deadline Most Landlords Have Never Heard Of
Here’s the rule that separates capital gains tax on rental property from every other gain you’ll ever report. Since 2021, a UK residential property disposal with tax due must be reported to HMRC, and the tax paid on account, within 60 days of completion, through HMRC’s online property reporting service. This is separate from and much earlier than Self Assessment: sell in May 2026 and the report and payment are due by roughly late July 2026, some eighteen months before the 31 January 2028 Self Assessment deadline for the same tax year. The official service is at GOV.UK’s report and pay CGT on UK property pages.
Miss the 60 days and penalties start at £100 and escalate with time, with interest running on the unpaid tax. The practical problem is that nobody in the sale process reminds you: conveyancers complete the sale, agents collect their fee, and the deadline quietly runs. Our advice to every landlord client is to involve your accountant before exchange, not after completion, so the computation is ready and the 60 day clock starts with everything prepared.
7 Legitimate Ways to Reduce Capital Gains Tax on Rental Property
None of these are schemes; every one is ordinary use of the rules as Parliament wrote them. What they share is timing: almost all of them only work if arranged before completion, which is why capital gains tax on rental property rewards landlords who plan the sale rather than just report it.
- Claim every allowable cost. Buying costs, selling costs, stamp duty and capital improvements all reduce the gain. Dig out the paperwork before the computation is done, not after.
- Use both spouses’ allowances and bands. Transfers between spouses and civil partners are no gain no loss, so ownership can be rearranged before sale. Two owners means two £3,000 allowances, and if one spouse has unused basic rate band, part of the gain is taxed at 18% instead of 24%. On our worked example, joint ownership alone saves £720, and more where bands differ.
- Offset capital losses. Losses on shares, crypto or other property, from this year or carried forward from properly claimed earlier years, come off the gain before tax is calculated.
- Time the sale across tax years. Completing on 6 April rather than 4 April moves the tax a full year away, may land the gain in a year when your income is lower, and gives a second allowance if you’re selling two properties in stages.
- Claim private residence relief if you ever lived there. Covered fully below, this is the big one for accidental landlords.
- Consider who should own the property years before selling. The best CGT outcomes are set up long before a sale: ownership shares, spouse transfers and incorporation decisions all work better with time. This is planning we do with landlord clients as a matter of course.
- Don’t pay tax on a gain you didn’t make. If you inherited the property, your cost is its probate value, not what the deceased paid. If you acquired it before rebasing dates or through other routes, the base cost needs proper analysis. Getting the starting number right is sometimes worth more than every other relief combined.
What If You Once Lived in the Property?
If the rental property was ever your main home, private residence relief exempts the portion of the gain covering the years you lived there, plus the final 9 months of ownership regardless of who occupied it then. The calculation is time apportioned: live there 6 years and rent it for 6, and roughly half the gain (plus the final 9 months’ worth) falls out of charge. For accidental landlords, the couple who kept a first flat and let it out after moving in together, this relief routinely cuts capital gains tax on rental property by more than any other single measure.
Letting relief still exists but in a narrow form: since 2020 it only applies where you shared occupation of the home with your tenant, which excludes the classic buy to let entirely. If a computation you’ve seen online leans on letting relief for a property you moved out of years ago, it’s using pre 2020 rules and will be wrong.
5 Costly Mistakes Landlords Make with Capital Gains Tax on Rental Property
- Finding out about the 60 day rule from a penalty letter. The most common mistake by far, and entirely avoidable by involving your accountant before exchange rather than at Self Assessment time the following year.
- Claiming improvements as repairs, or repairs as improvements. The boundary matters: a like for like replacement is a repair (rental accounts), an extension is capital (CGT computation). Claiming a cost in the wrong place either wastes it or invites an enquiry, and claiming the same cost in both places invites worse.
- Transferring to a spouse after the sale is agreed. A spouse transfer arranged at the last minute, or worse, papered after exchange, may not achieve the saving and can complicate the conveyancing. Ownership planning works when it happens early and genuinely.
- Guessing the base cost. Inherited properties use probate value, gifted properties use market value at the gift, and long held properties may have remortgages and part disposals muddying the history. A guessed base cost is how capital gains tax on rental property gets overpaid by thousands, or underpaid and reopened.
- Ignoring the sale’s knock on effects. A large gain doesn’t change your income tax, but the sale year still needs joined up thinking: the proceeds may push you past thresholds that matter elsewhere, from the £100,000 personal allowance taper on other income decisions to the timing of your next property purchase. Selling is a tax planning moment for the whole household, not one asset.
Properties Held in a Company: A Different World
Everything above is capital gains tax on rental property held personally. A limited company selling a rental property pays corporation tax on the gain instead, with no annual exempt amount and no 60 day CGT report, and the shareholders then face their own tax when extracting the proceeds. Whether property belongs in a company at all is a structure question with the same shape as the trading version we covered in sole trader vs limited company: the answer depends on your numbers, your timescale and your exit plan, and it deserves modelling rather than a rule of thumb. What rarely works is incorporating simply to dodge a sale that’s already agreed; moving a property into a company is itself a disposal at market value, which can trigger the very bill it was meant to avoid.
How Sepera Accounting Helps When You Sell
Sepera Accounting is a London based, AAT licensed and ACCA affiliated practice with over 30 years of combined experience and a specialism in landlords and property investors. On a sale, we prepare the full CGT computation with every allowable cost claimed, check private residence relief and loss claims, file the 60 day property return and tell you exactly what to pay and when, then reconcile it all through your Self Assessment. Before a sale, we do the part that saves the real money: reviewing ownership, timing and reliefs while there’s still time to act. If a sale is on the horizon, even a year away, talk to us first, because capital gains tax on rental property is decided by the choices made before completion day.
This article is general guidance based on the rules at the time of writing. Rates, allowances and reliefs can change, and property disposals are fact specific, so please contact us for advice tailored to your circumstances before acting.
Frequently Asked Questions
How much is capital gains tax on rental property in 2026/27?
Capital gains tax on rental property is 18% within your unused basic rate band and 24% above it, after deducting allowable costs and the £3,000 annual exempt amount. Because property gains are usually large, most landlords pay 24% on the majority of the gain.
What is the 60 day rule for capital gains tax on property?
When you sell a UK residential property with tax due, you must report the gain and pay the tax on account within 60 days of completion, using HMRC’s online property reporting service. This is separate from Self Assessment and arrives much earlier, with penalties from £100 for missing it.
What costs can I deduct when selling a rental property?
Buying and selling costs (solicitor, agent, survey), stamp duty paid on purchase, and capital improvements such as extensions or loft conversions. Repairs, redecoration and maintenance don’t reduce the gain, because they were deductible against rental income in the year you paid them.
Do I pay capital gains tax if I gift a rental property to my children?
Usually yes. Gifting a property to anyone other than your spouse or civil partner is a disposal at market value, so capital gains tax on rental property applies as if you had sold it at full price, even though no money changed hands. Take advice before gifting, not after.
Can transferring to my spouse reduce the tax?
Often, yes. Transfers between spouses and civil partners are no gain no loss, so shared ownership before sale uses two £3,000 allowances and both owners’ tax bands, taxing more of the gain at 18% rather than 24%. The transfer must genuinely happen, properly documented, before completion.
What if I used to live in the rental property?
Private residence relief exempts the portion of the gain for the years the property was your main home, plus the final 9 months of ownership. For accidental landlords this relief is often the largest single reduction in capital gains tax on rental property, so establish your occupation history precisely.
When do I pay the rest through Self Assessment?
The 60 day payment is on account. The disposal also goes on your Self Assessment return for the tax year, where the final figure is settled once your total income and any other gains and losses are known, with any balance paid or refunded then.
Is it better to hold rental property in a limited company for CGT?
Sometimes, but it’s a full structure decision, not a CGT trick. Companies pay corporation tax on property gains with no annual exempt amount, extraction is taxed again, and moving an existing property into a company is itself a disposal at market value. Model it properly before deciding.
