Capital gains tax on the sale of a buy-to-let property is one of the most significant financial events most landlords face. Unlike income tax, which is a regular drag on returns, CGT hits as a lump sum on sale — and for landlords who bought 10 or 15 years ago, the bill can be very large indeed.
This guide explains how CGT on residential property works in 2026, how to calculate what you might owe, and the options available to reduce or defer the liability.
CGT rates on residential property in 2026
CGT on residential property is charged at different rates from CGT on other assets:
- Basic rate taxpayers: 18% on gains
- Higher and additional rate taxpayers: 24% on gains
Your rate depends on your total taxable income in the year of disposal. If the gain, added to your income, falls partly in the basic rate band and partly above it, the gain is split and taxed at two different rates.
The annual CGT exemption
Every individual has an annual CGT exemption — for 2025/26 this is £3,000. Gains below this threshold are not taxable. For a landlord selling a property with a large gain, the £3,000 exemption is modest, but it is still worth accounting for.
How to calculate your gain
The capital gain on a buy-to-let property is broadly: sale price minus purchase price minus allowable costs. Allowable costs include:
- Solicitor and estate agent fees on purchase and sale
- Stamp duty paid on purchase
- Capital improvements to the property (not routine repairs or maintenance)
You cannot deduct mortgage interest, letting agent fees, repairs and maintenance, or other revenue expenses — those are set against rental income, not capital gains.
Example: Purchased for £180,000 in 2010. Sold for £420,000 in 2026. Purchase costs (stamp duty, solicitors): £7,000. Sale costs (estate agent, solicitors): £9,000. Capital improvement (loft conversion in 2018): £25,000. Gain: £420,000 – £180,000 – £7,000 – £9,000 – £25,000 = £199,000. Less annual exemption (£3,000): taxable gain = £196,000. CGT at 24%: £47,040.
Reporting and payment
Since April 2020, landlords must report a CGT liability on UK residential property and pay the tax within 60 days of completion. You do this through HMRC's online Capital Gains Tax on UK Property service — not through Self Assessment (though it also appears on your Self Assessment return). Missing the 60-day deadline incurs automatic late filing penalties and interest on unpaid tax.
Reducing your CGT bill: the options
Use your annual exemption
If you are married or in a civil partnership, you can potentially transfer a share of the property to your spouse before sale, using both annual exemptions. This saves up to £720 (24% of £3,000) per unused exemption — modest, but free.
Time the sale
If your gain would put you into the higher rate band, and you have income that varies year on year, consider whether timing the sale in a lower-income year reduces the rate on part of the gain.
Defer the gain through EIS
EIS CGT deferral relief allows you to invest the gain into EIS-qualifying companies and defer the CGT until you sell the EIS shares. This is not avoidance — the gain is still ultimately taxed. But it defers payment, potentially for many years, and allows you to invest the capital that would otherwise have gone to HMRC.
If you hold the EIS shares until death, the deferred gain may be extinguished as the shares form part of your estate (though your estate may have IHT considerations to weigh instead). For landlords who want to exit property and redeploy capital — but who are reluctant to crystallise a large CGT bill — this is one of the most effective planning tools available.
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