If you own a buy-to-let flat in Birmingham, a commercial unit in Leeds, or a holiday cottage in Cornwall, selling it triggers Capital Gains Tax. The rate you pay depends on two things: whether the property is residential or commercial, and which Income Tax band you fall into.

For 2025/26, the capital gains tax rate on real estate investment property is 18% for basic rate taxpayers and 24% for higher rate taxpayers on residential property gains. Commercial property gains are taxed at the same rates, but the rules around Private Residence Relief, reporting deadlines, and allowable costs differ significantly.

This article covers the rates, the reliefs, and the practical steps you need to take before selling a property held as an investment. As ICAEW qualified accountants, we deal with these calculations regularly for clients across the UK.

The Two Rates: Residential vs Commercial Property

HMRC splits property into two categories for CGT purposes. Residential property includes houses, flats, and apartments that have been used as a dwelling. Commercial property includes shops, offices, warehouses, and land. Mixed-use properties get apportioned between the two.

From 30 October 2024, the CGT rates for both residential and commercial property align at 18% for basic rate taxpayers and 24% for higher rate taxpayers. Before that date, commercial property was taxed at 10% and 20% respectively. The change simplified the system, but it also increased the tax bill for anyone selling a commercial investment property.

Residential Investment Property Rates

If you sell a buy-to-let house in Salford or a flat in Canary Wharf that you never lived in, the gain is taxed at:

  • 18% if your total taxable income and gains keep you within the basic rate band (£50,270 for 2025/26)
  • 24% if your total income and gains push you into the higher rate band

The gain is added to your other income for the year to determine which rate applies. If your salary is £45,000 and you make a £20,000 gain on a property sale, the first £5,270 of the gain is taxed at 18% and the remaining £14,730 at 24%.

Commercial Investment Property Rates

Commercial property gains are now taxed at the same rates: 18% and 24%. A shop in Digbeth or an office in MediaCity attracts the same CGT rate as a residential flat. The difference is that Private Residence Relief does not apply, and the 60-day reporting rule for UK residential property does not apply to commercial sales either.

How the Gain Is Calculated

The gain is the sale price minus the purchase price, minus allowable costs. Allowable costs include:

  • Stamp Duty Land Tax paid on purchase
  • Legal fees for buying and selling
  • Estate agent fees
  • Surveyor and valuation costs
  • Cost of improvements that add value (not repairs or maintenance)

If you bought a flat in Camden for £320,000 in 2018 and sold it for £460,000 in 2025, the gain before costs is £140,000. Deduct £8,000 in SDLT, £3,000 in legal fees, and £6,000 in agent fees, and the chargeable gain is £123,000.

You then deduct your annual exempt amount. For 2025/26, the CGT annual exemption is £3,000 per individual. That leaves £120,000 of taxable gain. If you are a higher rate taxpayer, the tax is 24% of £120,000, which is £28,800.

Private Residence Relief and Investment Property

Private Residence Relief (PRR) only applies if the property was your main home at some point. If you bought a house, lived in it for three years, then let it out for five years before selling, the final nine months of ownership are always treated as deemed occupation for PRR purposes. The gain is apportioned between the period you lived there and the period it was let.

If you never lived in the property, PRR does not apply. The entire gain is taxable. That is the position for most buy-to-let landlords and commercial property investors.

Letting Relief was abolished from 6 April 2020. It previously provided an additional relief of up to £40,000 for landlords who let out a property that had been their main home. That relief no longer exists.

Reporting and Payment Deadlines

For UK residential property, you must report the gain and pay the tax within 60 days of completion. You use the 60-day CGT property return, filed online through your Government Gateway account. If you miss the deadline, HMRC charges interest and penalties.

For commercial property, the gain is reported on your Self Assessment tax return (SA100) by 31 January after the tax year of disposal. You pay the tax as part of your balancing payment on 31 January, with payments on account if applicable.

A client of ours sold a commercial unit in Glasgow in June 2025. The gain was reported on their 2025/26 Self Assessment, due by 31 January 2027. They did not need to file a 60-day return. If they had sold a residential investment property in the same month, they would have needed to file the 60-day return by August 2025.

Business Asset Disposal Relief and Property

Business Asset Disposal Relief (BADR) previously called Entrepreneurs' Relief, applies at 14% for disposals from 6 April 2025, rising to 18% from 6 April 2026. The lifetime limit is £1 million.

BADR does not apply to most investment property sales. It applies to disposals of a business, shares in a trading company, or assets used in a trading business. A buy-to-let portfolio is generally treated as an investment activity, not a trade, so BADR is not available.

If you own a guest house in Blackpool and run it as a trade, the property may qualify as a business asset. If you simply let a residential flat on an assured shorthold tenancy, it does not qualify. The distinction matters, and HMRC scrutinises claims closely.

Spouses and Joint Ownership

If you own an investment property jointly with your spouse or civil partner, you each have your own annual exemption of £3,000. You can also transfer assets between you without triggering a CGT charge, as long as the transfer is not part of a sale to a third party.

This can be useful for planning. If one spouse has unused basic rate band, transferring a share before sale can mean the gain is taxed at 18% instead of 24%. But the transfer must be genuine and unconditional. HMRC can challenge transfers made solely to avoid tax.

A couple in Edinburgh owned a flat in Leith valued at £280,000 with a base cost of £200,000. The husband was a higher rate taxpayer. By transferring 50% of the property to his wife, who had no other income, the gain on her share was taxed at 18% rather than 24%, saving £1,200 in total.

Capital Allowances and Property

If you own a commercial property, you may have claimed capital allowances on fixtures and fittings. When you sell, those allowances can be clawed back as a balancing charge, which increases the gain. Alternatively, you and the buyer can agree a value for the fixtures, known as a Section 198 election, to fix the position.

Residential property does not generally qualify for capital allowances, so this issue does not arise for buy-to-let investors.

What Happens If You Sell at a Loss

If you sell an investment property for less than you paid, you have a capital loss. You can offset that loss against other chargeable gains in the same tax year, or carry it forward to future years. You cannot offset a capital loss against your income.

Losses must be reported to HMRC within four years of the end of the tax year in which they arose. If you do not report them, you lose the relief.

Practical Steps Before You Sell

Before marketing an investment property, get a valuation and a breakdown of your base cost. Check whether you have records of all purchase costs, improvement costs, and any capital allowances claimed. If records are missing, HMRC may restrict your deductions.

Consider the timing of the sale. If you sell in one tax year when your income is low, the gain may be taxed at 18% rather than 24%. If you are planning to retire or take a sabbatical, selling in that year could save thousands.

If your property is held in a limited company, the gain is subject to corporation tax at 19% to 25%, not CGT. The company pays corporation tax on the gain, and you then extract the proceeds as dividends or salary, which are taxed separately. That structure can be more tax-efficient for high-value portfolios, but it comes with additional compliance costs and the loss of the annual exemption.

For more detail on how CGT interacts with company structures, see our exit and capital gains articles.

Summary of Key Numbers for 2025/26

  • Residential property CGT rate: 18% basic rate, 24% higher rate
  • Commercial property CGT rate: 18% basic rate, 24% higher rate
  • Annual exemption: £3,000 per individual
  • BADR rate: 14% (rising to 18% from April 2026)
  • Residential reporting deadline: 60 days from completion
  • Commercial reporting deadline: 31 January after tax year end

If you are planning a property sale in the next 12 months, speak to a qualified accountant who understands the specific rules for your situation. The capital gains tax rate on real estate investment property is straightforward in principle, but the calculation depends on your personal circumstances, the property history, and the timing of the sale.

We handle these calculations regularly for clients across the UK. If you would like a review of your position before you sell, get in touch.