Selling a rental property is a significant financial event. If the property has increased in value since you bought it, you may have a capital gains tax liability. Unlike income tax on rental profits, capital gains tax operates under a different set of rules, has its own reporting obligations, and is entirely separate from the Making Tax Digital system you use for quarterly submissions.
Capital gains tax (CGT) is a tax on the profit you make when you sell or otherwise dispose of an asset that has increased in value. For landlords, the most common trigger is selling a rental property. You are taxed only on the gain — the difference between what you received when you sold and what you paid when you bought, after allowing for certain deductions.
Making Tax Digital covers your rental income and expenses — the ongoing activity of your letting business. It does not cover the disposal of properties. When you sell a rental property, that event is not reported through your quarterly MTD updates.
Instead, CGT on residential property has its own reporting obligation with a tight deadline. The disposal must be reported and any tax due paid within 60 days of the date of completion. This is done through HMRC's separate "Report and Pay CGT on UK Property" online service, not through your MTD software. The disposal is also included in your Final Declaration at year end, at which point HMRC reconciles the CGT already paid.
Since April 2020, landlords selling residential property in the UK must report the disposal and pay any CGT due within 60 calendar days of the completion date. This is a strict deadline. You must create a Capital Gains Tax on UK Property account with HMRC and submit the return online. Missing the deadline results in a £100 penalty, rising to £300 after six months and again after twelve months, plus late payment interest.
Each individual has an annual CGT allowance. The allowance has been reduced significantly in recent years: £12,300 in 2022-23, £6,000 in 2023-24, and £3,000 for 2024-25 and 2025-26. Only the gain above the allowance is taxable. For jointly owned property, each owner has their own allowance against their share of the gain.
From 30 October 2024, the CGT rates for residential property are 18% for gains that fall within the basic rate income tax band and 24% for gains that fall within the higher or additional rate band. These replaced the previous 18%/28% rates. The rate that applies depends on the total of your taxable income and your taxable gain in the year of disposal — the gain is treated as sitting on top of your income.
The gain is: sale proceeds minus purchase price minus allowable deductions. Allowable deductions include purchase costs (legal fees, stamp duty), improvement costs during ownership (capital expenditure, not routine repairs), and sale costs (legal fees, estate agent fees). Routine repairs and maintenance that you claimed as a revenue expense for income tax purposes are not deductible against CGT — they have already provided a tax deduction.
A landlord bought a rental property for £180,000 in 2015 and sold it in 2026 for £280,000. Allowable costs: purchase fees £3,000 + improvements £15,000 + sale fees £3,500 = £21,500. Gain: £280,000 - £180,000 - £21,500 = £78,500. Less annual allowance £3,000 = £75,500 taxable. At 24%: £75,500 × 24% = £18,120 CGT, due within 60 days of completion.
If the property was ever your main home, you may be eligible for PPR relief, which can reduce or eliminate the CGT liability. The final 9 months of ownership always qualify. Lettings relief, which previously provided additional relief where a property had been both a main home and let, was significantly restricted from April 2020. It now only applies where the landlord lives in the property at the same time as the tenant, so for most landlords who let their former home, it no longer provides any benefit.
CGT losses from other assets in the same tax year can be set against the property gain. Unused losses can be carried forward to future tax years without time limit. Losses must be formally claimed on your tax return to be available — they are not automatically applied.
There is no CGT on death — the asset is uplifted to market value on death. Transfers between spouses or civil partners during marriage are treated as no-gain, no-loss and CGT is deferred. If the entire gain falls within the annual allowance, no CGT is payable.
Your rental income and expenses continue to be reported through quarterly MTD submissions as normal until the date of completion. The sale itself is not reported through MTD. Within 60 days of completion, you report the disposal and pay CGT via HMRC's CGT service. At year end, you include the disposal in your Final Declaration through your MTD software so HMRC can reconcile the CGT already paid and account for your full income picture.
For complex situations — PPR relief, carried-forward losses, jointly owned property — specialist tax advice is recommended. See our MTD FAQs or visit the SimplifyMTD homepage.