Capital Gains Tax on Buy to Let: Rates, Allowances & Tips for UK Landlords
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If you’re a buy-to-let investor in the UK, Capital Gains Tax (CGT) is something you need to factor into your investment strategy. Whether you’re planning to sell a rental property or thinking about tax-efficient ways to reinvest your capital, understanding how CGT works can save you thousands.
For investors, capital gains tax liability is an inevitable part of property disposal, much like an estate agency fees. Understanding how capital gains tax works helps minimise costs, whether factoring in maintenance costs, considering a gift, or adjusting for your income tax band.
Every tax change introduced by the Chancellor reshapes strategies, making expert guidance essential. Whether selling or transferring to someone, staying ahead ensures tax efficiency and maximised returns.
In this guide, we’ll break down capital gains tax on buy-to-let properties, covering key rates, allowances, reliefs, and ways to reduce your tax liability.
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What is Capital Gains Tax (CGT)?
Capital Gains Tax (CGT) is a tax on the profit (or ‘gain’) made when selling an asset that has increased in value. In the case of buy-to-let properties, CGT applies when the property is sold for more than its original purchase price, after deducting allowable expenses.
Unlike income tax, CGT is only charged on the gain—not the total sale price.
For example, if you bought a rental property for £200,000 and later sold it for £280,000, the gain is £80,000. However, certain costs like legal fees, stamp duty, and renovation expenses can be deducted before calculating your capital gains tax bill.
For UK landlords, CGT on rental properties becomes payable as soon as the sale is completed, meaning you need to report and pay tax within 60 days of the transaction. Understanding the capital gains tax rate, reliefs, and allowable deductions can help you manage your tax liability effectively.
Capital Gains Tax Rates
The capital gains tax rate for buy-to-let properties depends on your total taxable income. The UK operates a tiered tax system, meaning your CGT liability is based on whether you fall into the basic rate or higher/additional rate tax bracket.
| Taxpayer Type | Income Threshold | CGT Rate on Property Gains |
|---|---|---|
| Basic Rate Taxpayers | Up to £50,270 | 18% |
| Higher & Additional Rate Taxpayers | Over £50,270 | 24% |
Since capital gains are added to your total taxable income, you may partially pay tax at different rates. For example, if your annual income is £45,000 and you make a £20,000 taxable gain on a rental property, £5,270 of the gain will be taxed at 18%, while the remaining £14,730 will be taxed at 24%.
In recent years, CGT rates have seen fluctuations. Notably, from 30 October 2024, CGT rates for assets other than residential property increased.
However, for residential properties like buy-to-let, the rates remain unchanged at 18% and 24% for basic and higher/additional rate taxpayers, respectively.
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Capital Gains Tax Allowance
Every tax year, UK landlords benefit from a Capital Gains Tax allowance, which lets you make a certain amount in capital gains before paying CGT. This tax-free threshold is known as the Annual Exempt Amount (AEA).
How much is the CGT Allowance for 2024/25?
- 2023/24 Tax Year: £6,000 per individual
- 2024/25 Tax Year: £3,000 per individual (cut by 50% from last year).
If you jointly own a buy-to-let property with a spouse or civil partner, both individuals can combine their allowances, effectively creating a £6,000 tax-free threshold before CGT is applied.
How Does the CGT Allowance Work?
If you sell a buy-to-let property and make a £20,000 taxable gain, you can deduct your £3,000 allowance, leaving a £17,000 taxable gain.
This amount is then taxed at either 18% or 24%, depending on your total income.
Will the CGT Allowance Change in the Future?
The Annual Exempt Amount has been steadily decreasing—from £12,300 in 2022/23 to £3,000 in 2024/25.
There is speculation that the UK government may remove the allowance entirely in future tax years, making tax planning even more essential for buy-to-let investors.
Tax Reliefs for Buy-to-Let Landlords
When selling a buy-to-let property, landlords can take advantage of capital gains tax reliefs to reduce their CGT liability. These reliefs help lower the taxable gain, potentially saving thousands. Two key reliefs available to UK landlords are Private Residence Relief (PRR) and Lettings Relief.
Private Residence Relief (PRR)
If you lived in the property as your main residence at any point before renting it out, you may qualify for Private Residence Relief (PRR). This relief applies to the period you lived in the home, plus the final nine months of ownership—even if the property was rented out during that time.
For example, if you owned a buy-to-let property for 10 years, lived in it for 3 years, and rented it out for the remaining 7 years, you would not pay CGT on the gain from the 3 years of residence, plus the final 9 months before selling. The remaining gain would be subject to capital gains tax on rental property at either 18% or 24%, depending on your total taxable income.
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Lettings Relief
Previously, Lettings Relief was a valuable tax benefit for landlords who had rented out a former main residence.
However, since April 2020, this relief is only available if you lived in the property at the same time as your tenants. This means most buy-to-let landlords no longer qualify unless they have shared occupancy with their renters.
While letting relief is now limited, PRR and allowable deductions (such as legal fees, improvement costs, and estate agent fees) can still help landlords reduce CGT on investment property.
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How to Calculate Capital Gains Tax on Buy-to-Let
Understanding how to calculate Capital Gains Tax (CGT) on buy-to-let properties is essential for landlords looking to estimate their tax bill and explore ways to reduce their CGT liability. Follow these steps to work out how much CGT you may owe when selling a rental property.
Determine the Capital Gain
Start by calculating the total gain from the property sale:
- Sale Price: The amount you sold the buy-to-let property for.
- Purchase Price: The original cost of the property when you bought it.
- Allowable Expenses: Deduct costs like legal fees, estate agent fees, stamp duty, and improvement costs (e.g., extensions or loft conversions).
If you bought a rental property for £200,000 and sold it for £280,000, with £10,000 in allowable expenses, your capital gain is
Apply Capital Gains Tax Reliefs
If you lived in the property at any point, you may be eligible for Private Residence Relief (PRR), which exempts part of the gain from tax. If you shared occupancy with tenants, Lettings Relief might also apply.
Example
If you lived in the property for part of the time and qualify for PRR, you might be able to exempt £20,000 of the gain, reducing your taxable amount to £50,000.
Subtract the Annual CGT Allowance
Every landlord gets a CGT allowance before tax is applied. For 2024/25, the allowance is £3,000 per individual. If the property is jointly owned with a spouse or civil partner, you can combine allowances to £6,000.
Example
If you have £50,000 in taxable gains, deduct £3,000 to bring it down to £47,000.
Apply the Correct CGT Rate
The remaining taxable gain is taxed based on your total income:
- Basic Rate Taxpayers (income up to £50,270): Pay 18% CGT.
- Higher Rate Taxpayers (income above £50,270): Pay 24% CGT.
If your total income plus the gain pushes you into the higher tax bracket, part of your gain may be taxed at 24%, while the rest is taxed at 18%.
Example
If your annual income is £45,000 and you make a £20,000 taxable gain, £5,270 of the gain will be taxed at 18%, and the remaining £14,730 at 24%.
Taxed depending on Total Income.
By following these steps, you as a buy-to-let investor can estimate their CGT liability and identify ways to reduce their tax bill.
Apply the Correct CGT Rate
The remaining taxable gain is taxed based on your total income:
- Basic Rate Taxpayers (income up to £50,270): Pay 18% CGT.
- Higher Rate Taxpayers (income above £50,270): Pay 24% CGT.
If your total income plus the gain pushes you into the higher tax bracket, part of your gain may be taxed at 24%, while the rest is taxed at 18%.
Example
If your annual income is £45,000 and you make a £20,000 taxable gain, £5,270 of the gain will be taxed at 18%, and the remaining £14,730 at 24%.
| Category | Amount |
|---|---|
| Capital Gain | £70,000 |
| PRR Exemption | £20,000 |
| Taxable Gain | £50,000 |
| CGT Allowance | £3,000 |
| Final Taxable Gain | £47,000 |
| CGT Due | Taxed at 18% or 24%, depending on total income. |
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How to Pay Capital Gains Tax (CGT)
Once you sell a buy-to-let property and make a capital gain, you must report and pay CGT to HMRC. The process has changed in recent years, making timely reporting and payment more important than ever to avoid penalties and interest charges.
For property sales completed on or after 27 October 2021, landlords must report and pay CGT within 60 days of the completion date. This applies to both UK residents and non-UK residents selling UK property.
To report capital gains on rental property UK, you need to:
- Use the Government Gateway online system to submit your CGT return.
- Provide details of the property sale, purchase price, selling costs, allowable deductions, and reliefs applied.
- Pay the capital gains tax bill based on the CGT rate applicable to your total income.
Reporting Capital Gains Tax
If you also complete a Self Assessment tax return, you must include details of your buy-to-let capital gains when filing your annual tax return. However, the CGT payment must still be made separately within the 60-day deadline. To stay compliant, landlords should calculate their CGT liability early, gather all necessary documents, and ensure payment is made on time.
Penalties for Late Payment
Failure to report and pay CGT on time can lead to financial penalties:
- Missed 60-day deadline – Late filing penalties start from £100, increasing over time.
- Unpaid CGT bill – Interest is charged on unpaid tax, increasing your overall CGT liability.
Reporting Capital Gains Tax
For property sales completed on or after 27 October 2021, landlords must report and pay CGT within 60 days of the completion date. This applies to both UK residents and non-UK residents selling UK property.
To report capital gains on rental property UK, you need to:
- Use the Government Gateway online system to submit your CGT return.
- Provide details of the property sale, purchase price, selling costs, allowable deductions, and reliefs applied.
- Pay the capital gains tax bill based on the CGT rate applicable to your total income.
Penalties for Late Payment
Failure to report and pay CGT on time can lead to financial penalties:
- Missed 60-day deadline – Late filing penalties start from £100, increasing over time.
- Unpaid CGT bill – Interest is charged on unpaid tax, increasing your overall CGT liability.
If you also complete a Self Assessment tax return, you must include details of your buy-to-let capital gains when filing your annual tax return. However, the CGT payment must still be made separately within the 60-day deadline. To stay compliant, landlords should calculate their CGT liability early, gather all necessary documents, and ensure payment is made on time.
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How to Avoid Capital Gains Tax on Buy-to-Let Properties
While it’s difficult to avoid capital gains tax entirely when selling a buy-to-let property, landlords can take steps to reduce their CGT liability and make their investment more tax-efficient. By using exemptions, reliefs, and smart tax planning, you can legally minimise the amount of CGT you owe.
Share your investment budget to receive a customised report using our advanced Property Profit Calculator. For a more comprehensive understanding of buy-to-let taxes in 2025, Explore our detailed Guide
Capital Gains Tax and Limited Companies
Selling a buy-to-let property via a company means paying corporation tax instead of CGT. Corporation tax rates are 19% for profits up to £50,000 and 25% above £250,000, which can be more tax-efficient than the 24% CGT for higher-rate taxpayers.
For landlords with multiple properties, operating through a company can be beneficial if they plan to reinvest profits rather than withdraw them. Unlike individuals, companies can retain rental income without incurring personal tax until funds are taken out.
Property Transfer
Costs
Transferring a property triggers CGT on gains and SDLT, making the switch expensive upfront.
Mortgage Considerations
Company buy-to-let mortgages often have higher interest rates than personal mortgages, affecting profitability.
Income and Tax Planning
Companies can retain profits tax-free, but withdrawals via salary or dividends incur income tax.
Key Takeaways
For Landlords on Capital Gains Tax
- CGT applies when selling a buy-to-let property, based on the profit, not the sale price.
- Rates for 2024/25: 18% for basic-rate taxpayers, 24% for higher/additional-rate taxpayers.
- CGT allowance is £3,000 per person (£6,000 for jointly owned properties).
- Deductible costs include legal fees, estate agent fees, stamp duty, and improvement costs.
- PRR can reduce CGT if you previously lived in the property (+final 9 months exempt).
- Lettings Relief now only applies if you lived with tenants.
- CGT must be reported and paid within 60 days to avoid penalties.
- Using a limited company may lower tax but comes with extra costs (Stamp Duty, mortgage rates, withdrawal taxes).
- Strategic tax planning helps reduce CGT – use allowances, reliefs, and time sales wisely.
- Get professional advice to stay updated on tax rules and optimise your investment strategy.
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Frequently Asked Questions
The amount of Capital Gains Tax (CGT) you owe depends on your total taxable income and the gain from selling your buy-to-let property. If your income is up to £50,270, you’ll pay 18% CGT on the gain. If your income exceeds £50,270, you’ll pay 24% CGT. The CGT allowance for 2024/25 is £3,000, which reduces the taxable amount.
Yes, reinvesting the proceeds into another property does not exempt you from CGT. Unlike Business Asset Rollover Relief, which applies to trading businesses, buy-to-let properties do not qualify for tax deferral when reinvesting. CGT must be calculated and paid within 60 days of selling the property.
Yes, if you inherit a property and later sell it, CGT applies on the gain made from the date of inheritance to the sale date. However, inheritance tax (IHT) may already have been paid by the estate, and the market value of the property at the time of inheritance is used as the purchase price, not the original owner’s purchase price.
To qualify for Private Residence Relief (PRR) and avoid CGT, the property must be your main residence for a significant period. While there is no fixed minimum period, HMRC considers the quality of residence (such as registered address, council tax, and utility bills) over time. If you live in the property, PRR exempts the time lived there plus the final nine months of ownership from CGT.
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