Selling and CGT
Selling a buy-to-let: how to reduce capital gains tax
How landlords can reduce CGT on selling a buy-to-let: timing, spouse transfers, the annual exempt amount, losses, allowable costs and the 60-day return.
Selling a buy-to-let is one of the few times a landlord writes a single, large cheque to HMRC. Capital gains tax on residential property is charged at 18% where the gain falls within your basic rate band and 24% above it. It must be reported and paid within 60 days of completion.
You can't avoid tax on a genuine gain. But the amount depends a great deal on timing, ownership and record-keeping. This article sets out the legitimate ways to reduce it.
How the gain is worked out
The gain is the sale price, less:
- the purchase price;
- the costs of buying (SDLT, legal fees, survey);
- the costs of selling (estate agent and solicitor fees);
- capital improvements, such as an extension, still reflected in the property.
Normal maintenance, such as decorating, doesn't count. Costs already claimed against rental income can't be claimed twice.
Each individual has a £3,000 annual exempt amount for 2026/27. The gain above that is added to your taxable income to find the rate.
An illustration
This is an illustration, not a client example. A property bought for £200,000 is sold for £350,000.
| £ | |
|---|---|
| Sale price | 350,000 |
| Less selling costs | (6,000) |
| Less purchase price | (200,000) |
| Less buying costs | (5,000) |
| Less extension (capital improvement) | (25,000) |
| Gain | 114,000 |
Owned by one higher-rate taxpayer: £114,000 less £3,000 = £111,000 at 24% = £26,640.
Owned 50:50 with a spouse who has no other income:
- Higher-rate spouse: £57,000 less £3,000 = £54,000 at 24% = £12,960.
- Spouse with no income: £54,000, of which £37,700 at 18% (£6,786) and £16,300 at 24% (£3,912) = £10,698.
- Total £23,658, about £3,000 less.
Our property CGT calculator runs these numbers for you.
Seven ways to reduce the bill
1. Time the exchange
For CGT, the disposal happens at exchange of contracts, not completion. That decides the tax year. Exchanging after 5 April moves the gain into the next tax year, which can help if:
- your income will be lower next year (retirement, a career break);
- you've already used this year's annual exempt amount or basic rate band;
- you want the tax to fall due later.
The reverse also applies. If this year is unusually low-income, exchanging before 6 April can lock in the 18% rate on more of the gain. Remember that the 60-day clock runs from completion, not exchange, so the return and payment are due 60 days after completion even where the gain falls in the earlier tax year.
2. Spread sales across tax years
Selling two properties in different tax years gives you two annual exempt amounts and two basic rate bands. With several properties to sell, a phased plan over two or three years can save more than any single relief.
3. Use both spouses' allowances
Transfers between spouses and civil partners living together are no gain, no loss. Moving a share to a lower-earning spouse before exchange means the gain is split between two annual exempt amounts and potentially taxed at 18% on more of it.
Conditions: the transfer must be genuine and outright, made before exchange, and the proceeds must belong to the spouse. If a share of a mortgage passes too, SDLT can arise on that share of the debt. From the transfer, the rental income is also split differently for income tax.
Couples who have separated have until the end of the third tax year after the year they stopped living together (or longer under a divorce agreement or court order) for transfers to stay no gain, no loss.
4. Claim every allowable cost
Find the completion statement from the purchase, invoices for extensions and conversions, and the sale costs. Missing records are the most common reason landlords pay more CGT than they need to.
5. Use capital losses
Losses on other assets, such as shares, can be set against a property gain. Same-year losses are used first. Brought-forward losses are only used to reduce gains to the annual exempt amount, so they aren't wasted. Losses must be claimed within four years of the end of the tax year they arose in.
6. Check for private residence relief
If you ever lived in the property as your main home, part of the gain may be exempt. The final nine months of ownership always qualify where it was your main residence at some point. Lettings relief now only helps where you shared the home with a tenant, not where the whole property was let.
7. Consider holding until death
Assets passing on death are not subject to CGT. Your heirs take the property at its market value at the date of death. That doesn't avoid inheritance tax, and it's rarely the whole answer, but for elderly landlords with large gains it often shapes the sale plan. See inheritance tax planning for landlords.
The 60-day return
UK residents selling UK residential property must report and pay within 60 days of completion if there is tax to pay. The figure is an estimate based on your expected income for the year, and it's corrected on your Self Assessment return. Interest and penalties apply if you're late.
Non-UK residents must report every disposal of UK property within 60 days, even if there's no gain. See non-resident landlords.
Selling as a non-resident, a trust or a company
The rules above are for UK-resident individuals. Other owners face different points:
- Non-UK residents pay UK CGT on UK property. Rebasing to April 2015 values (April 2019 for non-residential property) may be available, so only later growth is taxed. Every disposal must be reported within 60 days, even with no gain.
- Trustees and personal representatives pay 24% on the whole gain, and most trusts have a £1,500 annual exempt amount.
- Companies pay corporation tax on gains, at 19% to 25% depending on total profits. Indexation is frozen at December 2017. Getting the proceeds out of the company is taxed again, so the total cost of a sale can be higher than personal ownership.
If you're weighing a sale against moving the portfolio into a company, compare the two on the same figures. See is incorporation worth it?
What doesn't work
- Selling cheaply to family. Sales to connected persons are taxed at market value.
- Giving the property away. A gift is also a market-value disposal, with no cash to pay the tax. Holdover relief for business assets doesn't cover buy-to-lets.
- Reinvesting in another property. Rollover relief is for trading assets.
- LLP-based schemes. HMRC's Spotlight 69 explains why moving properties into an LLP and liquidating it doesn't avoid CGT.
Checklist before you sell
- Original purchase completion statement and SDLT return.
- Invoices for every capital improvement.
- Dates you lived in the property, if ever.
- Your expected income for this year and next.
- Any capital losses, with dates.
- Ownership and mortgage details for both spouses.
- Expected exchange and completion dates.
Talk to us before you exchange: once contracts are exchanged, the main levers are gone. We work on fixed fees agreed upfront and respond the same working day. Read more on capital gains tax on property.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
