Capital Growth
Quick answer
The increase in a property’s market value over time, as distinct from the rental income it produces. It is only realised (and taxed, via Capital Gains Tax) when the property is sold. Many landlords weigh capital growth against rental yield when choosing where and what to buy.
At a glance
- Realised on
- Sale (then CGT applies)
- Trade-off
- Often inverse to rental yield
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Open full guideWhy Capital Growth matters for landlords
Capital growth and rental yield often pull in opposite directions: high-yield areas tend to see slower price growth, while expensive high-growth areas produce thinner yields. A strategy built purely on capital growth is a bet on the market and is vulnerable to downturns and to the CGT due on sale (18%/24% on residential property). Since Section 24 and higher mortgage rates squeezed rental profit, many landlords now scrutinise whether projected growth actually justifies holding a low-yielding property.
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Official sources
LetCompliance editorial reviews this entry every quarter against the sources above. Always confirm specific duties with a qualified solicitor or your local council.
Related terms
Capital Allowances
Tax relief for capital spending on qualifying "plant and machinery". For a standard residential letting they are generally NOT available — furniture and appliances are covered instead by Replacement of Domestic Items Relief. Capital allowances mainly apply to equipment in the communal areas of some HMOs and to commercial property; the furnished holiday let regime that allowed them was abolished from April 2025.
Capital Expenditure vs Revenue Expenditure
The line that decides whether a cost reduces your rental profit now or your Capital Gains Tax later. Revenue expenditure (repairs, maintenance, replacing like-for-like) is deducted from rental income in the year you spend it. Capital expenditure (improvements, extensions, first-time installation of something new) is added to the property’s cost base and only counts against CGT when you sell.
Furnished Holiday Let (FHL)
A short-let property meeting the FHL availability and letting tests (210 days available, 105 days actually let, etc.). Treated as a trade for tax purposes until 5 April 2025, with full mortgage interest deduction, capital allowances on furniture and fittings, and Business Asset Disposal Relief on sale. From 6 April 2025 the FHL regime was abolished by the Finance Act 2024: existing FHLs fall under standard property income rules and Section 24 mortgage interest restriction applies in full.
Interest-Only Mortgage
A mortgage where the monthly payment covers only the interest, leaving the original capital to be repaid at the end of the term. Most buy-to-let mortgages are interest-only because it maximises monthly cashflow and, historically, the tax treatment of interest. The capital must still be repaid eventually — usually by selling or remortgaging the property.
Freehold
Outright ownership of a property and the land it stands on, with no time limit and no landlord above you. Most houses are freehold; most flats are leasehold. A freeholder of a block owns the building and collects ground rent and service charges from the leaseholders.
Leasehold
Owning the right to occupy a property for a fixed number of years under a lease, while a separate freeholder owns the land and building. Most flats in England are leasehold. Leaseholders usually pay ground rent and service charges and must observe lease conditions, including any restrictions on subletting.