Do falling house prices reduce my Capital Gains Tax bill?

Yes, but by far less than the fall itself. Capital Gains Tax on residential property is charged at 18 per cent within the basic rate band and 24 per cent above it for 2026 to 2027, with a £3,000 annual exempt amount. So a higher rate taxpayer whose property falls £3,687 in value has a gain that is £3,687 smaller and a tax bill £884.88 smaller. The other £2,802.12 comes straight out of what reaches your bank account. Tax cushions roughly a quarter of a price fall for a higher rate taxpayer. It never pays for it.

Should I sell my rental property before the Budget on 28 October?

Only if the sale makes sense at today's rates, with nothing changing on 28 October. Selling is irreversible and the Capital Gains Tax is payable within 60 days of completion, so a disposal rushed to beat a rumoured rate rise that does not arrive means paying tax years early for nothing. Nobody outside the Treasury knows what the Budget contains, and the one property tax reform that was widely reported, replacing council tax and stamp duty with a land value tax, was ruled out last month. Decide on the property, the tenant and the yield, not on the speculation.

Does a 2 per cent price fall affect my buy-to-let remortgage?

It can, because lenders lend against value while your debt stays fixed. On a property worth £364,999 with a £250,000 interest-only mortgage, the loan to value is 68.5 per cent. A further 2 per cent fall takes the value to £357,699 and the loan to value to 69.9 per cent, and it removes £7,300 of equity, which is 6.3 per cent of the £114,999 you held. At a 75 per cent limit, the maximum you could borrow drops from £273,749 to £268,274. That is £5,475 less available on one property.

Is a falling market a good time to incorporate a property portfolio?

A lower market value does make the entry cost lower, because moving a property you already own into a company is a disposal at market value. On a valuation £3,687 lower, a higher rate taxpayer saves £884.88 of Capital Gains Tax and £184.35 on the 5 per cent surcharge that applies to additional residential properties, so about £1,069 in total. That is real, and it is not a reason on its own. Incorporation still has to earn its place on rental profits, mortgage rates and how much you draw out, which is a modelling exercise rather than a market timing one.

Does this mean my own house is worth 1 per cent less than last year?

Not necessarily, for two reasons. Rightmove measures asking prices, so it captures what sellers are advertising rather than what buyers eventually pay, and it moves earlier than sold price data. And the national average hides a wide regional split: London asking prices fell 3.1 per cent in the year to August and the south of England fell 1.8 per cent, while the north rose 1.5 per cent. If you need a value for a real decision, such as a transfer, a refinance or probate, use a valuation of your actual property rather than a national index.

House prices fell 2% this month. What that actually does to a landlord's numbers.

Reacting to: House prices suffer biggest August slump in eight years (City A.M.) →

A house price story is almost always written as a mood story. Confidence, nerves, sentiment, buyers and sellers "bracing". None of that is actionable. If you own a rental, or a building your business trades from, or a home you were planning to borrow against, the only question worth asking this week is arithmetic: which of my numbers moved, and by how much?

The answer is more specific than the coverage suggests, and it is not the one most people assume. A falling market does cut a future tax bill — but it cuts your proceeds by around four times as much. Meanwhile it moves a second number that nobody writes about, which is how much a lender will let you borrow. That one lands sooner, and for a geared landlord it is the bigger of the two.

What was actually reported

Rightmove's figures, as reported by City A.M. on 16 August, are these. The average house price fell 2 per cent this month to £364,999 — the biggest August drop since 2018. Prices are down 1 per cent year-on-year, the largest annual fall since December 2023. Rightmove has cut its forecast for national growth this year to between zero and minus 2 per cent.

The national average hides a split that matters more than the headline. London fell 3.1 per cent in the year to August, the south of England fell 1.8 per cent, and the north rose 1.5 per cent. London has the most homes available in 16 years, and the average home there costs about 17 times the national average wage. Tom Bill of Knight Frank put the cause as rising mortgage rates and Budget uncertainty curbing demand, "felt more acutely in parts of the country where affordability is already stretched".

One caveat the coverage rarely carries: Rightmove measures asking prices. It is what sellers advertise, not what buyers pay, so it turns earlier and moves further than sold-price data. It is a good early signal and a poor valuation.

Worked example one: what a falling market does to a Capital Gains Tax bill

Take an illustrative landlord — not a client, and the figures are chosen so the arithmetic is easy to follow. One rental property bought for £250,000, now worth the national average of £364,999. The owner is a higher rate taxpayer. For 2026-27, Capital Gains Tax on residential property is 18 per cent within the basic rate band and 24 per cent above it, with a £3,000 annual exempt amount.

Sell today and the gain is £114,999. Take off the £3,000 exemption and £111,999 is taxable at 24 per cent — £26,879.76 of tax, leaving £338,119.24 before selling costs.

Now run the same sale a year ago, when the price was 1 per cent higher at £368,686. The gain was £118,686, the taxable amount £115,686, and the tax £27,764.64 — leaving £340,921.36.

Selling one rental	A year ago	Today
Sale price	£368,686	£364,999
Gain after the £3,000 exemption	£115,686	£111,999
Capital Gains Tax at 24%	£27,764.64	£26,879.76
Left after tax	£340,921.36	£338,119.24

The price fell £3,687. The tax bill fell £884.88. What actually reaches the bank account fell £2,802.12. In other words the tax system absorbs 24 per cent of a price fall for a higher rate taxpayer, and you carry the other 76 per cent.

That ratio is the whole point, because it kills the two arguments people build on top of a falling market. "Prices are down, so my tax problem is smaller" is technically true and financially irrelevant. And "I should sell before it falls further" is a market call dressed up as tax planning — the tax is the small end of it. Remember too that residential Capital Gains Tax is reported and paid within 60 days of completion, separately from the tax return, so a rushed disposal brings a real cash deadline with it. Our guide to what landlords can and can't claim covers the allowable costs that reduce that gain properly.

Worked example two: the number that moves first

Same property, worth £364,999, with an interest-only buy-to-let mortgage of £250,000. Equity is £114,999 and the loan to value is 68.5 per cent.

Apply another 2 per cent fall. The property is worth £357,699. The mortgage has not moved — debt is fixed in pounds, which is the entire mechanic of gearing — so:

Equity falls to £107,699. That £7,300 of value is 6.3 per cent of your equity, not 2 per cent of it.
Loan to value rises from 68.5 per cent to 69.9 per cent.
At a 75 per cent lending limit, the most you could borrow drops from £273,749 to £268,274 — £5,475 less, on one property.

That is the number to check this month, and it is the one that arrives before any Budget does. If you have a fix ending in the next twelve months and you were counting on releasing equity, the amount available has moved and the lender will price the band you land in. Multiply by a four-property portfolio and you are £21,900 short of a plan you thought you had.

Worked example three: the incorporation question, answered honestly

The one place a falling market genuinely works in your favour is the cost of entry. Moving a property you already own into a limited company is a disposal at market value, so a lower value means a lower charge on the way in: less Capital Gains Tax, and less Stamp Duty Land Tax, which includes the 5 per cent surcharge on additional residential properties.

On our £3,687 lower valuation that is £884.88 less Capital Gains Tax and £184.35 less surcharge — about £1,069 saved, before the rest of the Stamp Duty calculation. Real money, and nowhere near enough to make the decision. Incorporation has to earn its place on rental profits, company mortgage rates, early repayment charges and what it costs you to take money back out at dividend rates. It is a modelling exercise, and we set out the mechanics in Section 24 and mortgage interest relief.

What this means for you, by situation

Holding, not selling. Nothing has happened to you yet. Your rent has not changed and your mortgage has not changed. Do not act.
Refinancing within a year. This is your story. Get a current valuation, recalculate the loan to value, and find out now whether you still clear the band you were assuming.
Selling within a year. Run the after-tax figure, not the asking price. Then decide, knowing the tax carries a quarter of any further fall and you carry three quarters.
Thinking about a company. Get the valuation on record. A market value used for a transfer needs to be defensible to HMRC, and "the average was £364,999" is not a valuation of your house.
Buying. Falling asking prices and the highest London supply in 16 years is a buyer's position, not a seller's.

What is still unknown, and when we will know it

Three things, and it is worth being plain about them rather than guessing. First, the Budget on 28 October 2026 — the reported plan to replace council tax and stamp duty with a land value tax was ruled out last month, and beyond that nobody outside the Treasury knows what is in it. Second, mortgage rates: Knight Frank's view is that nothing suggests a material fall in the short term. Third, whether asking prices lead sold prices down; the sold-price indices will tell us over the autumn.

Which brings us back to the rule we set out for the twelve weeks before the Budget: only take an action now if it still makes sense assuming nothing changes on 28 October. Selling a property is irreversible. Checking your loan to value is not.

Three things worth doing this week

Write down today's value and today's mortgage balance for each property. Divide one by the other. If the answer is within five percentage points of your lender's limit, that is a live issue and it is better handled in August than in the week a fix expires.
Put the after-tax number on any sale you are contemplating. Our capital gains calculator will produce your version in a couple of minutes. A decision made on the sale price alone is being made on the wrong figure.
Get the rental figures current. If you are inside Making Tax Digital for Income Tax, the quarterly rhythm has started anyway — and a valuation conversation with a lender or with HMRC goes very differently when the income and expenses are up to date rather than reconstructed in January.

A 2 per cent month is not a crisis and it is not a signal to do anything dramatic. It is a prompt to check two numbers you should be able to state anyway. That is the honest version of this story, and it is what we do for our landlord clients — the arithmetic, before the decision, not after it.