Selling Rental Property Taxes: What Landlords Need to Know

If you're a landlord selling a rental property, you’ll pay Capital Gains Tax (CGT) on the profit you make from the sale. 

The amount depends on your gain, available reliefs, and personal tax circumstances. There are also strict reporting and payment deadlines that apply after a property sale. 

In this article, you can read all about the rules, rates, reliefs, and deadlines around taxes when selling rental property.

Key points

• Allowable costs can reduce your tax bill 💷
  Costs such as the purchase price, legal fees, selling costs, and qualifying capital improvements can all reduce your taxable gain.
• Private Residence Relief can lower or eliminate CGT 🏡
  If the property was your main home for some or all of the time you owned it, you may be entitled to relief that reduces the gain subject to tax.
• Don't miss the 60-day reporting deadline ⏰
  Property disposals that create a CGT liability need to be reported and paid within 60 days of completion. Missing the deadline can result in penalties and interest.
• Proper record-keeping makes taxes easier 🚀
  Keeping accurate records of income, expenses, and property transactions can make it simpler to calculate your gain. ANNA helps you organise your finances, track expenses, file Self Assessment returns, and stay ready for HMRC reporting requirements.

What tax do you pay when you sell a rental property?

When you sell a property that isn't your main home, the primary tax you'll need to pay is the CGT on any profit from the sale. 

CGT applies to the gain you've made, which is the difference between what you originally paid for the property and the price you sold it for, reduced by allowable costs.

It's a separate tax from the Income Tax you pay on your rental profits each year, and it's calculated differently. 

How to calculate your gain

Before you can calculate your tax, you need to determine your taxable gain. 

The formula is:

Sale proceeds - allowable costs = taxable gain

Allowable deductions can significantly reduce your capital gain. These include:

• The purchase price of the property
• Stamp Duty Land Tax (SDLT) paid when you bought it
• Legal and conveyancing fees associated with the purchase
• Capital improvements that add value to the property
• Real estate agent and solicitor fees incurred when selling

Capital improvements vs routine repairs

Only capital improvements can be deducted when calculating your capital gain. A capital improvement is work that enhances the property, increases its value, or extends its useful life.

Examples of capital improvements include:

• Building an extension
• Converting a loft or garage
• Adding a conservatory
• Installing a new kitchen as part of a larger upgrade project

Routine repairs and maintenance don’t qualify. These costs are considered part of the day-to-day upkeep of the property rather than improvements.

Examples of non-deductible repairs include:

• Fixing a leaking roof
• Replacing broken windows
• Repainting walls
• Repairing a boiler

How to calculate your capital gain: An example

Say you bought a flat for £200,000 and paid £6,000 in purchase costs (SDLT and legal fees). You spent £14,000 on a loft conversion in 2021, and you're now selling for £310,000, paying £7,000 in estate agent and legal fees.

Here’s how your gain would be calculated:

You'd then deduct the annual exempt amount to get your taxable gain.

The annual exempt amount for Capital Gains Tax

The CGT allowance for 2026/27 is £3,000. That means you only pay CGT on total capital gains exceeding this threshold across all taxable assets, including property. 

If a sale resulted in a loss, you can deduct it from your profit. This is called an allowable loss.

Keep in mind that your £3,000 annual exemption can’t be carried forward to the next year if unused. 

🧠 Good to know

If you're selling a property you own jointly with a spouse or civil partner, HMRC allows each of you to apply your own annual exempt amount to your share of the gain. 

Many people transfer or restructure ownership before selling to improve their tax position. However, the tax treatment depends on how and when the transfer is made, so it's worth speaking with an accountant first.

Capital Gains Tax rates on rental property in 2026/27

For the 2026/27 tax year, CGT on residential property is charged at two rates: 

• Basic rate (18%) on any gain that is within your remaining basic rate Income Tax band
• Higher rate (24%) on any portion above that band 

Any capital gain is added to your other taxable income when calculating your Income Tax band for the year, so this may push you into a higher bracket. 

The personal allowance for 2026/27 is £12,570, and the basic rate band covers the next £37,700, meaning the higher rate kicks in at a total taxable amount of £ 50,270.

For example, if you earn £38,000 from employment and make a £40,000 taxable gain on your property, the first £12,270 of the gain falls within your remaining basic rate band and is taxed at 18%. The remaining £27,730 falls within the higher rate band and is taxed at 24%.

Private Residence Relief

If the property you're selling was at any point your main home, you may qualify for Private Residence Relief (PRR), which can reduce or eliminate your CGT bill.

If the property was your only or primary residence for the entire time you owned it, you will usually pay no CGT on any profit you make when selling it. 

If you used the property as your primary residence for part of the time you owned it, only the portion of the gain attributable to that period will be exempt. The relief applies to the time you used the property as your main home, plus the final 9 months of ownership, even if you had already moved out. 

So, if you owned a house for 10 years and lived in it for 6 years, then rented it out for 4 years before selling, you could claim relief for 6 years plus 9 months, or 81 months out of 120.

How to calculate your Capital Gains Tax: An example

Building on the previous example, here's how the final CGT bill could be calculated.

You made a capital gain of £83,000 from selling your rental property.

First, deduct the annual exempt amount of £3,000 for a taxable gain of £80,000.

Your employment income for the year was £38,000.

The higher-rate threshold starts at £50,270, meaning you have £12,270 of unused basic-rate band available.

Your taxable gain would be taxed as follows:

In this example, you would pay £18,463.80 in CGT.

Reporting and paying CGT

If you sell UK property, you have to report the sale and pay any CGT due within 60 days of the sale completing.

The 60-day deadline starts from the completion date, not the exchange date. For example, if the sale completes on 1 July, you have to report and pay by 30 August, regardless of when contracts were exchanged. 

Sales are reported through HMRC's 'CGT on UK property account', which taxpayers set up via Government Gateway. You can either do this yourself or authorise a tax adviser to do it on your behalf. 

Even if you file a Self Assessment tax return, you still have to use this separate service to report property sales within 60 days.

If you miss the deadline, the penalties are:

• £100 immediately after the deadline passes
• A further £300 (or 5% of tax owed, whichever is greater) at 6 months
• Another £300 (or 5% of tax owed) at 12 months
• Interest on any unpaid tax throughout

The 60-day rule doesn't apply if PRR covers your entire gain, or if the disposal results in a loss with no tax due.

What happens on your Self Assessment return?

You need to include the disposal on your Self Assessment tax return for the relevant tax year. 

HMRC reconciles the two. You can claim back any overpayment if your final Self Assessment calculation shows that you paid too much through the 60-day return, for example because additional losses reduce your taxable gain. If you've underpaid, you'll need to pay the remaining balance. 

If you're a landlord who files Self Assessment for rental income, you’re likely familiar with the process of reporting property income and expenses on the designated return pages. However, capital gains are reported separately in their own sections.

Taxes when selling rental property through a limited company

If your rental property is owned by a limited company, CGT doesn't apply.

Instead, any gain is generally subject to Corporation Tax.

The rules differ from personal ownership because:

• There’s no CGT annual exempt amount
• The 60-day CGT property reporting regime doesn't apply
• Profits remain within the company until extracted

When you eventually take money out of the company, further tax may apply to dividends, salaries, or other forms of extraction.

Whether holding property through a company is tax-efficient depends on your circumstances, financing arrangements, future plans, and profit extraction strategy. Company directors usually seek professional advice before restructuring ownership.

How ANNA simplifies taxes on rental property sales

Selling a rental property often means dealing with multiple tax obligations, reporting deadlines, and years of financial records. Keeping everything organised can make it easier to calculate your gain and meet HMRC requirements.

ANNA offers tools and services that can help:

• Business account: Keep rental income and property-related spending separate from your personal finances
• Expense categorisation: Automatically sort transactions so you can easily track and review property costs
• Receipt capture: Store receipts and supporting documents digitally to maintain evidence of allowable expenses
• Free MTD ITSA for landlords: Connect your bank account and HMRC account, and ANNA will track your rental income and expenses, calculate your taxable profit, file quarterly updates, and submit your final declaration, all for free
• 24/7 access to professional support: Connect with qualified tax experts whenever you need help with landlord tax obligations, HMRC requirements, or MTD compliance 

Sign up with ANNA today and take the stress out of landlord finance management.