CGT on BTL

Capital Gains Tax (CGT) on the sale of a UK buy-to-let is governed by the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and HMRC’s CG Manual. The headline 2024/25 reform reduced the higher residential rate from 28% to 24% (Finance Act 2024) while leaving the basic rate at 18%. Both rates remain in force for 2026/27. CGT applies to the gain, disposal proceeds minus the original cost minus allowable expenses, not to the entire sale price. The Annual Exempt Amount was cut from £12,300 (2022/23) to £6,000 (2023/24) and then to £3,000 from 2024/25 onward, materially increasing the taxable slice on a typical disposal.

The basic-rate band test is calculated as if the gain were income added to your other taxable income for the year. So a higher-rate taxpayer with no spare basic-rate band pays 24% on the entire gain; a basic-rate taxpayer with £5,000 of unused basic-rate band pays 18% on the first £5,000 of gain and 24% above. Spreading a sale across two tax years, or selling jointly with a spouse who has spare basic-rate band, can materially reduce the bill on properties owned outright. Joint ownership doubles the AEA (£6,000 for a married couple jointly).

Allowable costs reduce the gain. The four main categories are: acquisition costs (the original purchase price, SDLT paid on purchase, conveyancing, survey), enhancement expenditure (capital improvements that materially increased the property’s value, a kitchen replacement counts, a like-for-like boiler does not, an extension counts in full, redecorating does not), incidental costs of disposal (estate agent fees, sale conveyancing) and any pre-letting refurb costs that were not claimed against income tax. Careful documentation of capital improvements over the holding period can reduce a 30-year gain by tens of thousands.

Private Residence Relief (PRR) is gone for an investment-only BTL. PRR applies only to periods when the property was your only or main residence (plus a 9-month "final period" allowance regardless of occupation). A property held purely as a let from purchase has zero PRR. A property occupied as the main home for 5 years then let for 10 has 5 + 9/12 = 5.75 years of relief out of 15 years held: reducing the chargeable gain by 38%. Letting Relief was almost entirely abolished from April 2020: it now only applies where the owner shares occupation with the tenant.

The 60-day reporting deadline is the most-missed compliance trap. Since 27 October 2021, any UK residential disposal generating a chargeable gain (after AEA) must be reported and paid via the HMRC Capital Gains Tax on UK Property service within 60 days of completion, not 60 days after the tax-year end. Penalties start at £100 for late filing and rise to £300 + 5% of tax owed at 6 months and again at 12 months. The reported figures feed into the year-end self-assessment return, which reconciles any over- or under-payment, but the 60-day filing remains a separate obligation.

For higher-leverage portfolios the interaction with Section 24 produces a counter-intuitive result. Selling one property to clear mortgage debt on another can crystallise CGT and trigger SDLT on no replacement, but it can also reduce ongoing Section 24 costs and improve the post-tax cash position of the remaining portfolio. Run the disposal through this calculator alongside the Section 24 calculator to see the joint impact before deciding. For larger portfolios consider an exit strategy that uses the AEA every tax year and the spouse’s basic-rate band each year, taking 5–10 years to wind down a portfolio without bunching a single year’s gain.