Selling a Rental Property: Tax Planning Guide

Selling a rental in 2026-27 is mainly about CGT and the 60-day clock. Get the gain right, hit the 60-day deadline, and do not assume "I used to live there so there is no tax".

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. Step-by-step CGT calculation in 2026-27

Tax year:

You are in 2026-27, so the annual exempt amount is GBP 3,000 per person, same as 2025-26.

Basic formula (TCGA 1992):

Gain = Sale proceeds - (Acquisition cost + Enhancement costs + Incidental costs of buying/selling)

Where:

• Sale proceeds = sale price minus any allowable selling costs paid by you (agents, legal fees).
• Acquisition cost = what you originally paid plus SDLT, legal, survey fees.
• Enhancement expenditure = capital improvements that add value or extend life (extensions, loft conversions, new rooms, structural changes, planning costs).
• Incidental costs of acquisition/disposal = agents, legal fees, some advertising and professional fees tied directly to buying or selling.

You do not deduct:

• Normal repairs and maintenance (those were income-tax expenses).
• Finance costs (interest).

Then:

• Work out total gain.
• Apply PPR and lettings relief if relevant (see below).
• Deduct your GBP 3,000 annual exemption.
• Apply rates: 18% on gains falling in your unused basic-rate band, 24% on the rest (residential rates as updated from 6 April 2024 and carried into 2026-27).
• You cannot carry the GBP 3,000 allowance forward. If you do not use it in 2026-27, it is gone.

2. 60-day reporting and penalties

Since April 2020 (30 days, extended to 60 days from 27 Oct 2021), if you sell a UK residential property and CGT is due, you must:

• Report the disposal via the CGT on UK property online service.
• Pay the estimated CGT within 60 days of completion (not exchange).
• This 60-day report is in addition to your Self Assessment return if you file SA.

Penalties if you miss it (mirroring SA late penalties):

• 1 day late: GBP 100 fixed penalty.
• Over 3 months: daily penalties (GBP 10/day up to 90 days = max GBP 900).
• Over 6 months: further penalty (GBP 300 or 5% of tax due).
• Over 12 months: another GBP 300 or 5% of tax due.

Interest also runs on late paid CGT.

If no CGT is due (full PPR or gains under exemption), UK-resident individuals do not need a 60-day return. Non-residents still may.

3. Former home: PPR and lettings relief

Private Residence Relief (PPR) (TCGA 1992 s222-226)

• You get relief for periods when the property was your only or main residence.
• You also get the final 9 months of ownership as deemed occupation, as long as it was your main home at some point.

PPR fraction:

Exempt gain = Total gain x (Months of actual occupation + final 9 months) / Total months owned

The rest of the gain is chargeable.

Lettings relief

• Since 6 April 2020, lettings relief only applies if you shared occupation with the tenant (eg a lodger) while it was let.
• Maximum lettings relief = lowest of GBP 40,000, the PPR amount, or the gain relating to the let period.
• For most classic BTLs where you moved out then let, there is now no lettings relief.

4. Enhancement expenditure vs repairs

Enhancement (capital) costs (deductible for CGT):

• Extensions, loft conversions, conservatories.
• Structural changes (adding bathrooms, moving walls).
• Planning and architects' fees for new space.
• Significant improvements that add to the value or extend life of the asset.

Repairs (revenue costs already claimed against rent, not deductible for CGT):

• Repainting, replastering, replacing like-for-like kitchens and bathrooms.
• Boiler swaps, roof repairs, replacing rotten windows with modern equivalents.

If a single project mixes both, you apportion and only the enhancement part goes into the CGT base cost.

5. Timing strategies around 6 April

Because the annual exemption is small (GBP 3,000), timing is about using it efficiently:

Spread disposals across tax years:

• If you plan to sell two properties, completing one on 5 April and one on 6 April uses the allowance twice (once in each year) and gives two years to smooth gains.
• Couples: with joint ownership you effectively get GBP 6,000 of combined allowance per year if both are on the title and both sell.

If CGT rates are expected to rise or allowances fall in future Budgets, selling earlier can also be a planning move; right now, the main variables are your other income (18% vs 24%) and phasing of disposals.

Reinvestment options:

• Pay down other BTL mortgages to reduce Section 24 pain.
• Reinvest through a company if you are re-building a portfolio and want full interest deduction.
• Diversify out of property if your estate is already heavy on CGT-exposed and IHT-exposed assets.

6. Common mistakes and forum myths when selling

Real mistakes

Missing the 60-day reporting because they think CGT is only a January Self Assessment job. For any taxable residential gain, 60 days is hard law.

Mis-categorising enhancement vs repairs, either under-claiming (not including genuine improvements) or over-claiming (throwing in every bit of maintenance). HMRC focus on big refurb invoices.

Assuming full PPR because they "lived there once", without doing the fraction. For long letting periods, much of the gain will still be taxable.

Forgetting that losses and the GBP 3,000 allowance must be claimed in the right year -- you cannot retro-carry the allowance.

Forum myths

"If it was ever your home, there is no CGT." Wrong: you only shelter the portion corresponding to occupation plus final 9 months. The rest is taxable unless covered by allowance/losses.

"Lettings relief still gives GBP 40k off if you rented it out." Since 2020, lettings relief only applies if you shared the property with tenants. For standard ex-home-then-let situations it is effectively gone.

"You only report property gains on your January tax return." Wrong: for UK residential property with CGT due, you must report and pay within 60 days, then also include it on SA if you are in Self Assessment.

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