Landlord Tax / Lesson 8 of 9
Capital Gains Tax when you sell
The tax on twenty years of growth, worked out in one calculation.
The short answer
- ✓ CGT is charged on the gain, not the sale price
- ✓ Purchase costs, selling costs and capital improvements all reduce the gain
- ✓ Residential property has its own higher CGT rates
- ✓ A property that was once your main home may qualify for partial relief
What is taxed
When you sell a rental property you pay Capital Gains Tax on the gain, not on the sale price. The gain is what you sold it for, less what you paid, less the costs of buying and selling, less capital improvements.
Sale price £280,000
Less selling costs (agent, legal) -£4,500
Less purchase price -£185,000
Less buying costs (SDLT, legal, survey) -£7,200
Less capital improvements (extension) -£18,000
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GAIN £65,300
Less annual exempt amount -£3,000
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TAXABLE GAIN £62,300This is where those purchase and improvement receipts you were told to keep indefinitely earn their place. Without them the deductible costs cannot be substantiated, and the gain is larger than it should be.
The rates
Residential property has its own CGT rates, higher than for other assets.
| Your band | Rate on residential property gains |
|---|---|
| Basic rate | 18% |
| Higher or additional rate | 24% |
The gain is added on top of your income to decide which rate applies. A basic-rate taxpayer with a large gain will find part of it taxed at the basic rate and the rest at the higher rate, because the gain itself pushes them through the band.
What is deductible, and what is not
| Cost | Deductible against the gain? |
|---|---|
| Stamp Duty paid on purchase | Yes |
| Legal and survey fees, buying and selling | Yes |
| Estate agent fees on sale | Yes |
| An extension or loft conversion | Yes, capital improvement |
| Repairs and redecoration | No, already relieved against rental profit |
| Mortgage interest | No |
| Your own time and labour | No |
The bit HMRC does not spell out
If the property was ever your main home, even years ago, part of the gain may be relieved by Private Residence Relief for the period you lived there, plus a final period of ownership. Landlords who moved out of a former home and let it instead frequently do not realise this applies to them and pay tax on a gain that was partly exempt.
The reverse trap also exists: you cannot simply nominate whichever property has the biggest gain as your main home. Any nomination must reflect genuine residence, and HMRC looks at the facts rather than at the paperwork.
Offsetting losses
Capital losses on other assets can be set against property gains in the same year, and unused losses carry forward indefinitely provided they were reported. Reporting a capital loss in the year it happens is worth doing even when there is no gain to use it against yet.
Common mistakes
- Calculating tax on the sale price. It is on the gain.
- Forgetting purchase costs and improvements. They reduce the gain, if you can evidence them.
- Deducting repairs. Those were relieved against rental profit already.
- Overlooking Private Residence Relief on a former home. Very commonly missed.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your gain
Used to work out how much of your gain falls in the basic-rate band.
Capital Gains Tax
on a net gain · effective rate
- Net gain
- Tax-free allowance (AEA)
- −
- Taxable gain
- at
- at
- Gain after tax
What this means
Estimate only - not tax advice. Reliefs (Private Residence Relief, BADR, gifting to a spouse) can change this. rates.
What this means for you
Do this next, in order
Estimates only - not financial or tax advice. Confirm figures on GOV.UK or with an adviser.
CGT as your gain grows
Based on your current income and asset type. The marker shows your gain.
Compare saved scenarios
| Scenario | Net gain | CGT | Kept | |
|---|---|---|---|---|
Key takeaways
- ✓ CGT is charged on the gain, not the sale price
- ✓ Purchase costs, selling costs and capital improvements all reduce the gain
- ✓ Residential property has its own higher CGT rates
- ✓ A property that was once your main home may qualify for partial relief
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. You sell a rental for £280,000 having bought it for £185,000. What is taxed?
2. Can you deduct the cost of repairs and redecoration from your capital gain?
3. The flat you are selling was your own home for four years before you let it. Does that matter?
Sources
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