How Do I Pay Capital Gains Tax When I Sell a Rental Property

Selling a rental property often triggers Capital Gains Tax and the process is stricter and faster than many landlords expect. HMRC requires you to calculate the gain, report it and pay the tax within a specific deadline. In my opinion this is one of the tax areas that catches landlords out most often because the reporting rules changed in recent years and many still assume they can wait until the next Self Assessment cycle. That is no longer the case.

This guide explains exactly how to calculate, report and pay CGT when you sell a rental property. You will learn how the tax is worked out, what deductions you can claim, which records you must keep, when the tax is due, how to create your Capital Gains Tax on UK Property account, what happens if you miss the deadline and the practical steps to avoid errors. I will also include real world examples because CGT is much clearer when you apply the numbers.

By the end you will know exactly how to pay Capital Gains Tax correctly and on time when you sell a rental property.

Understanding When Capital Gains Tax Applies

Capital Gains Tax applies if you sell an investment property for more than it cost you. This includes:

Buy to let properties
HMOs
Holiday lets
Second homes
Land used for investment
Inherited properties that you later sell

CGT does not usually apply to your main residence because of Private Residence Relief although the moment a property becomes a rental the exemption no longer applies to that period of ownership.

In my opinion every landlord should assume CGT applies unless they lived in the property as their main home for the entire period of ownership.

The Current CGT Rates for Rental Properties

CGT on residential property is higher than on other assets.

The current rates are:

18 percent for gains within the basic rate band
24 percent for gains that fall into the higher or additional rate band

This split applies to the gain after deducting allowable costs and any unused basic rate band.

Your rate does not depend on your income alone. It depends on:

Your income
Your taxable gain
How the gain pushes you into the higher band

The Deadline: You Must Report and Pay CGT Within 60 Days

One of the most important rules is the 60 day deadline.

You must:

Report the sale
Calculate the gain
Pay the Capital Gains Tax

within 60 days of completion.

Completion means the day the property legally transfers not the day you accept an offer.

If you miss the deadline HMRC can charge penalties and interest.

In my opinion this deadline is where most landlords go wrong because they are used to the old rule where CGT was paid at Self Assessment.

Step by Step: How to Calculate Capital Gains Tax When You Sell a Rental Property

You need to work out your taxable gain before you can pay it. Here is the process.

1. Work out your sale proceeds

This is usually:

The sale price
minus selling fees such as estate agent fees and solicitor fees

Example:
Sold for £300,000
Estate agent fees £4,000
Solicitor fees £1,000
Net proceeds £295,000

2. Work out your allowable purchase costs

These include:

Purchase price
Solicitor fees
Stamp Duty
Survey fees
Any legal costs connected with the purchase

Example:
Bought for £200,000
Stamp Duty £7,500
Legal fees £1,200
Total cost £208,700

3. Deduct capital improvements

You can deduct improvements that enhance the property’s value such as:

Extensions
New bathrooms or kitchens
Loft conversions
Structural work
New windows

You cannot deduct repairs or maintenance.

In my opinion the improvement versus repair distinction is one of the biggest points of confusion.

Example:
Extension cost £15,000
New windows £4,000
Total improvements £19,000

4. Calculate the gain

Sale proceeds minus purchase costs minus improvements.

£295,000
minus £208,700
minus £19,000
= Gain of £67,300

5. Deduct your annual CGT allowance

The CGT allowance has reduced significantly and continues to fall.

2024 to 2025 allowance: £3,000
2025 onwards: currently expected to remain at £3,000 unless changed by future budgets

So your taxable gain becomes:

£67,300
minus £3,000
= £64,300 taxable gain

6. Split the gain between tax bands

Add your taxable gain to your yearly income to see how much sits in the basic rate band.

Example:
Taxable income £35,000
Basic rate limit £50,270
Remaining basic rate band £15,270
Basic rate portion of the gain: £15,270
Higher rate portion of the gain: £49,030

7. Apply the CGT rates

18 percent on the basic rate portion
24 percent on the higher rate portion

Tax:
£15,270 at 18 percent = £2,748.60
£49,030 at 24 percent = £11,767.20

Total CGT = £14,515.80

How to Report and Pay CGT Within 60 Days

HMRC uses a special online system called:

Capital Gains Tax on UK Property service

You must create a CGT property account even if you already file Self Assessment.

Step by step process:

1. Create a Capital Gains Tax on UK Property account

Go to GOV.UK
Sign in with Government Gateway
Set up your CGT account

2. Enter the details of the sale

Address
Dates of purchase and sale
Sale price
Costs
Capital improvements
Letting period
Your UK residency status

3. Declare the calculated gain

You enter your calculations
HMRC does not calculate the gain for you

4. Submit the return and pay the tax

Payment must be made within 60 days
Payment method: bank transfer or card

In my opinion landlords should prepare the figures before completion because 60 days passes quickly and solicitors rarely handle CGT.

What Records You Must Keep

HMRC may request evidence. Keep:

Completion statements for purchase and sale
Estate agent invoices
Solicitor invoices
Receipts for improvements
Loan statements if mortgage fees were involved
Dates of occupancy and letting
Any valuation reports

You must keep records for at least five years after the 31 January following the tax year.

Can You Use Losses to Reduce CGT

Yes. If you have made losses on other assets you can offset them against the gain.

Losses must be:

Realised losses (assets actually sold for less than they cost)
Reported to HMRC within four years

Losses reduce your taxable gain which reduces your tax.

Example:
Property gain £64,300
Other declared losses £10,000
Taxable gain £54,300

Does Letting Relief Still Apply

Letting Relief used to be generous although it changed significantly in 2020.

Now you only qualify if:

You lived in the property as your main residence at the same time it was let out

If you never lived there while it was let you will not receive Letting Relief.

In my opinion very few rental property owners now qualify.

What About Private Residence Relief

If the property was once your main home you may qualify for:

Private Residence Relief for the period you lived there
Final period exemption (usually the last 9 months of ownership)

This can significantly reduce the gain.

Example:
Lived in property 5 years
Let it for 10 years
PRR for 5 years plus final 9 months

Only the remaining period is taxable.

What Happens if You Miss the 60 Day Deadline

HMRC can charge:

Late filing penalties
Late payment penalties
Interest on the unpaid tax

The penalties can add up quickly.

If you missed the deadline file the CGT return immediately. HMRC may reduce penalties if you have a reasonable excuse although they apply a strict definition of reasonable.

Do I Still Need to Declare the Gain on Self Assessment

Yes. You must:

Submit the 60 day return
Pay the tax
Then include the gain again on your Self Assessment return

HMRC uses the Self Assessment calculation to confirm the final tax position for the year. If further tax is due it will be added to your January payment.

In my opinion this double reporting is one of the most confusing parts of the system.

Real World Examples

Example 1: Basic rate taxpayer selling a rental

Income £20,000
Gain £30,000
Allowance £3,000
Taxable £27,000

Entire gain within basic rate band
Tax at 18 percent
CGT = £4,860

Example 2: Higher rate taxpayer selling a rental

Income £55,000
Gain £70,000
Allowance £3,000
Taxable £67,000

Entire gain in higher rate band
Tax at 24 percent
CGT = £16,080

Example 3: Property once lived in

Owned 15 years
Lived in 5
Let for 10

You receive PRR for 5 years plus 9 months
You tax the remaining period only

This often reduces the gain significantly.

Example 4: Jointly owned property

If owned with a spouse each person:

Reports their own share of the gain
Uses their own CGT exemption
Pays tax based on their own rates

This can reduce tax by using two allowances and two tax bands.

Common Mistakes Landlords Make

Missing the 60 day deadline
Confusing repairs with improvements
Not keeping receipts
Using the wrong dates
Forgetting sale and purchase fees
Not including Stamp Duty in base cost
Failing to report losses
Entering the gain incorrectly in Self Assessment
Not splitting the gain correctly for joint owners

In my opinion the biggest mistake is assuming the solicitor deals with CGT. They do not.

Conclusion

When you sell a rental property you must calculate, report and pay Capital Gains Tax within 60 days of completion. The gain is worked out after deducting purchase costs, selling fees, capital improvements and your annual CGT allowance. If you lived in the property at any stage you may qualify for Private Residence Relief although this applies only to specific periods. You must report the gain using HMRC’s Capital Gains Tax on UK Property service and then declare it again on your Self Assessment tax return.

In my opinion landlords should prepare their CGT calculation well before completion because the process is more complex than people expect and the 60 day deadline leaves little room for error. With proper records and an accurate calculation you can avoid penalties and ensure everything is handled correctly.