Capital gains tax on buy-to-let properties can become confusing, especially if you are new to property investment. This blog will help you understand what capital gains tax is, and if you are liable for it on your buy-to-let properties.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit when you sell something that has increased in value since originally purchasing it. The gain gets taxed, which is the difference between what you originally paid for the property and what you are selling it for. However, capital gains tax is more complex than just that!

There are various assets liable for capital gains tax, and these include properties that are not your main home.

Do Landlords Pay Capital Gains Tax on Buy-to-Let Properties?

Because buy-to-let properties are not your main home, the property will be liable for capital gains tax when you sell it. It is therefore important to bear this in mind if the property has increased in value since you purchased it.


How Much Capital Gains Tax Do Landlords Pay on Buy-to-Let Properties?

How much capital gains tax a landlord is liable for depends on various factors. These include:

  • The current tax rates for buy-to-let properties
  • Capital gains tax-free allowance
  • Lettings Relief and Private Residence Relief
  • Relief on certain costs and expenses


Capital Gains Tax Rates

The rate you pay on capital gains tax when selling a buy-to-let property depends on your income tax band. You pay 18% capital gains tax on a buy-to-let property if you fall into the basic rate income tax band. However, you will pay 28% capital gains tax on a buy-to-let property if you are in the higher rate or additional rate income tax bands.

The income tax bands in the UK (excluding Scotland) for the 2020/21 tax year are:


Taxable Income

Tax Rate

Personal Allowance

Up to £12,570


Basic Rate

£12,571 to £50,270


Higher Rate

£50,271 to £150,000


Additional Rate

over £150,000



Capital Gains Tax-Free Allowance

The capital gains tax allowance is set at £12,300 per person and this is set until 2025. Therefore, the first £12,300 of any gain you make on your buy-to-let property is exempt from this tax. Moreover, this is per person, so you can double your tax-free allowance if the property is in joint ownership.

Private Residence Relief and Lettings Relief

If a property is your main residence, you are granted residence relief and are exempt from capital gains tax. If the property was your main home for any length of time, Lettings Relief allows you to qualify for Private Residence Relief on any gain over the final 9 months of ownership.

Capital Gains Tax Relief on Certain Costs and Expenses

Certain costs and expenses associated with the sale of your buy-to-let property can be deducted from your capital gains tax bill. These include expenses such as stamp duty from the original purchase, solicitor’s fees, renovation expenses and estate agency fees.

Paying Your Capital Gains Tax Bill

If your property has made no financial gain or the gain is less than the allowable deductions, you will not be liable for capital gains tax. Once the property sale is complete, you will have 30 days to pay your bill and send a capital gains tax
return. You will also need to include any capital gains tax liability on your annual tax return if you pay income tax through self-assessment.

If you are interested in buy-to-let opportunities available in London, please contact us.