Capital Gains Tax (CGT) On Buy To Let Property in East London
By Azeem S. | Created on 7th April 2025
You may want to sell up if you’ve seen a drop in rental income or want to reinvest your money elsewhere. If you decide to sell your buy-to-let property, you may need to pay capital gains tax (CGT) on the money you make.
The more profitable your property is, the more likely you’ll need to pay capital gains tax. This is particularly relevant if you have owned your property for a while.
While Dagenham and Barking house prices are fluctuating and Romford prices match the 2022 peak, Ilford and Redbridge property prices have increases 2-3% in the past 12 months (Rightmove, 2025). Overall, East London house prices have nearly doubled over the last decade. If your rental property has followed this longer-term trend, you must check if you are liable for capital gains tax when you sell.
Many people ask if you can avoid capital gain tax when you sell a rental property. The honest answer is probably not – however, you can take action to try and reduce your bill.
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Recent Changes To Capital Gains Tax
The government’s recent review of CGT does not affect residential property, but the rules can and do change so it’s essential to know the latest position on tax rates, reliefs and allowances.
For example, higher rates and an end to tax-free allowances have been discussed, so always check the latest position on the gov.uk website.
Remember, the rules about property tax can be complex, so it’s worth consulting an accountant with experience in this field. They can advise you on legally reducing your bill based on your circumstances.
What Is Capital Gains Tax?
CGT is paid on the ‘gain’ when you dispose of certain assets – including residential property, although it doesn’t usually apply to your main home. You must also pay tax when you sell shares, artwork and jewellery.
You only pay CGT on the rise in value of the asset. So, if you purchased your buy-to-let property 10 years ago for £250,000 and sold it for £500,000, CGT would only be payable on the £250,000 difference between the two.
How Much Capital Gains Tax Will I Need To Pay On My Property Transaction?
The amount of GCT you pay will depend on whether you are a basic or higher-rate taxpayer. Property owners in the basic tax rate category are subject to an 18% tax on their capital gains.
On the other hand, those on the higher rate face a 24% tax. It’s essential to exercise caution, though, as the increase in your property’s value could propel you from the basic tax rate bracket to the higher one within a fiscal year.
How Capital Gains Tax Is Calculated – A Real Example
To demonstrate how capital gains tax is calculated, let’s say a landlord is selling a terraced rental property in Dagenham. It was bought for £360,000 in 2019 and sold for £425,000 in spring 2025, representing a £65,000 gain.
This BTL landlord may deduct Stamp Duty Land Tax (SDLT) (3% at the time of purchase, £10,800), purchase costs (£5,000), and selling expenses (£5,000). They also made improvements costing £12,000, and can utilise the personal allowance of £3,000, leaving a net gain of £29,200.
A basic rate taxpayer would pay capital gains tax at 18%, or £5,256. A higher or additional rate taxpayer would pay CGT at 24%, or £7,009.
When Do I Have To Pay Capital Gains Tax On My Buy-To-Let?
You have 60 days to report and pay after completing your sale. You must pay the charge online on HMRC’s government gateway site. You could also face a penalty charge and interest payments if you don’t pay on time.
How Can I Avoid Paying Capital Gains Tax On My Buy-To-Let?
Private Residence Relief
The primary way to avoid paying CGT is to claim private residence tax relief; this is why anyone selling their main home is exempt from CGT. You can only claim this tax relief if you have lived in your buy-to-let property as your primary residence – and you can only claim for the period during which you lived there.
For example, say you lived in a property for 10 years before moving in with your partner and deciding to rent it out. If you choose to sell the property 10 years later, you can claim private residence tax relief for the first 10 years. You can also claim for an additional nine months before the sale, further reducing your bill.
How Can I Reduce My Capital Gains Tax Bill?
If you are selling a second home or buy-to-let property, you will likely have to pay capital gains tax, but there are legal ways of reducing your bill by claiming the allowances you are entitled to. Check the rules carefully; seeking professional advice is the best way to avoid paying more capital gains tax than necessary.
1. Use Your Tax-Free Allowance
Each person has a tax-free allowance for CGT. However, the government has dramatically decreased this over the past few years. For the tax year 2024/25, this amount is £3,000 – so if you made £20,000 on your property sale, you would only pay the tax on £17,000.
If you are married or in a civil partnership and jointly own the property, you may double this allowance to £6,000. The government has not announced plans to adjust the tax-free allowance for the 2025/2026 tax year.
2. Factor In Deductions
You can deduct specific home improvements and property sale costs from your gain, lowering the tax amount due. Common deductions include:
Stamp duty – Stamp duty can be included as a property purchase cost.
Legal fees – Landlords can claim for the costs of solicitor’s fees for buying and selling the rental property.
Professional fees – Surveyor and estate agent fees relating to the property sale can also be deducted.
Improvement works – You can’t deduct repair and maintenance costs, but can include the cost of improvement works to your home, such as extensions or loft conversions.
3. Think About When To Sell
If you dispose of other assets, such as stocks and shares, during a tax year, the gain from these will be added to the amount you make on your buy-to-let property. You could consider holding on to the property until the following tax year to spread out your gains. Be aware, you cannot claim business asset roll-over relief, even if you are selling before purchasing your next buy-to-let.
It might also be worth waiting if your income is likely to fall soon, which would mean you would pay CGT at a lower rate. For example, if you plan to retire and, as a result, pay tax at the basic rate.
4. Set Up A Limited Company
CGT applies to private individuals. If you set up a limited company for your buy-to-let business, you will instead pay corporation tax on the gain at a rate of 19% or 25% depending on your overall profits. This could reduce your tax bill if you are a higher-rate payer.
However, there are many, many other considerations – you may find it harder to get a buy-to-let mortgage and have to pay stamp duty when moving the property to your limited company. It is essential to get professional advice before taking this step.
Many landlords ask if they can reduce CGT by making their buy-to-let property their primary residence – a process known as flipping. This may be an option if your rental property is unoccupied, but it must become your genuine main home.
This means having your name on the electoral register and the council tax and utility bills. You need to change your primary residence within 2 years of the additional property purchase, or due to special circumstances (e.g. selling a portion of the property to a joint owner). HMRC can investigate if there’s any doubt. Again, it is essential to consult an accountant if you consider taking this step.
6. Consider joint ownership
If you’re married, joint ownership can help to avoid paying as much capital gains tax when selling a rental property. As joint owners, you can combine your CGT allowance with your spouse’s to effectively double it.
7. See if you’re eligible for lettings relief.
Landlords who rent out their home should check if they’re eligible for lettings relief when selling the property. Lettings relief applies to homeowners who rent out a portion of the property, while using it as their main residence at the same time.
Understand capital gains tax on rental property?
If you have a buy-to-let property to sell in Upminster, Rainham, Newbury Park, Harold Hill or Manor Park, we can advise you about the tax implications and the pros and cons of putting your property on the market.
For example, there may be ways to increase your rental income or reduce expenses so you don’t need to sell your property. We’d also be delighted to offer you a market appraisal. Please give us a call today.
I began as a junior apprentice in a corporate estate agents in 2006 have been working in the property sector since, so over 14 years of experience. I have worked in a range of industries from Property sales and lettings, to construction, development, commercial sales and lets as well as facilities management and maintenance. I have a degree in Economics, enjoy keeping fit and healthy, support Man Utd and have a young family.
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