Selling a Second Home: What are the Tax Implications?

If you sell a second home or buy-to-let property, you will need to pay capital gains tax on the profits you make. It is important that you understand your tax obligations when selling a property, including the amount of time that you have to pay capital gains tax following the sale of a property.

Capital gains tax is calculated as a percentage of profit gains, so if you are selling a property in areas such as Fitzrovia or Mayfair, where average properties sold for around £1.64 million and over £5.4 million respectively (over the last 12 months), capital gains tax could be substantial. Late payment of capital gains tax can result in large fines.

Keep reading to find out about the taxes you need to pay, and what the implications are for your sale.

What is Capital Gains Tax?

Capital gains tax (CGT) is the tax you must pay on any profit (gain) you make when you sell a property that is not your main home. Your gain is the difference between what you paid for the property and the amount you later sell it for. For example, if you purchased a property for £1.5 million and sold it for £2 million, you would be required to pay capital gains tax on the £500,000 profit you have made.

You are also liable to capital gains tax if you dispose of a property in other ways, such as gifting or transferring it to someone else or exchanging it for another asset. In this instance, you will use the property’s market value in place of the sale price.

When do I have to pay Capital Gains Tax on a property?

Generally, you will not have to pay CGT tax when you sell your main home unless it has been used as a business premise or if you have let out all or part of your property (this does not include having a lodger if you are living at the property too).

However, you will have to pay CGT if you are selling a house or flat that you bought as a second property, such as a holiday home. You will also be liable to pay capital gains tax on any buy-to-let property, even if it is the only property you own.

You are required to report and pay any due capital gains tax within 60 days of selling the property.

What qualifies as my ‘main residence’ for Capital Gains Tax purposes?

If you have more than one property, you can nominate one to be tax-free. This doesn’t need to be the one where you spend most of your time. If you can, nominate the property you expect will make the largest gain when you come to sell it.

You have two years from when you get a new home to nominate it as your main residence.

Capital Gains Tax Allowance

Fortunately, you do have an annual capital gains tax allowance, but this has been significantly reduced in recent years. For the tax year 2024/25, the annual exempt amount is £3,000.

Couples who jointly own assets can combine this allowance, potentially allowing a gain of £6,000. This cannot be carried forward. In other words, if you don’t use it, you will lose it.

Capital Gains Tax Rates For Second Homes

You pay higher rates of capital gains tax on a property than on other types of assets. Basic-rate taxpayers currently pay 18% on any gains they make when selling property. Higher and additional-rate taxpayers currently pay 24%. The gov.uk website shows the current income tax bands.

It is crucial to remember that any capital gains you make in the tax year will be included when working out your personal tax status for that year. This means that your gains from selling a property could push you into a higher tax bracket. The taxable gain is treated as the “top slice” of your income, so some of the gain can be taxed at 18%, with the rest at 24%.

Want to know more? Sellers in this position may also want to read what a sales progressor does and find out whether you can have more than one estate agent.

How do I calculate my Capital Gains Tax liability?

You do not pay Capital Gains Tax on the entire sales value of the property, only on the amount that is counted as gains. You are permitted to deduct certain expenses from your gain to reduce your tax liability. These include estate agent’s fees, solicitor’s fees and the cost of any improvement work. You cannot deduct the costs of decorating or maintaining the property.

Gains = Purchase Price – (Sale Price + Buying & Selling Costs + Improvement Costs)

To calculate how much CGT you will need to pay, deduct your annual CGT allowance from your gains. You must pay Capital Gains tax on this amount.

Add your capital gain to your taxable income to determine whether you pay the lower or higher rate of CGT.

CGT Payable = (Gains – CGT Allowance) x CGT Tax Rate

The government has provided an online capital gains tax calculator, which will help you assess your liability.

Capital Gains Tax filing obligations

You need to report the gain to HMRC on a CGT return and pay the tax within 60 days of completion. Failure to pay within 60 days will result in penalties and interest charges.

Given the tight deadline, you’ll need to make sure you have gathered together all the relevant information required in advance. This includes:

• The date you acquired the property.
• The costs of purchase and disposal. Including purchase price and sale price, stamp duty, solicitors fees and estate agents fees from the sale, surveyors fees from the purchase, legal fees from the purchase and sale.
• Costs of eligible home improvements.
• Your earnings in the tax year.

The tax due is an estimated amount at the time of the gain and could change if the person’s earnings change the tax bracket they fall into. The amount paid is treated as a payment on account and processed on the individual’s self-assessment tax return.

Most people are expected to submit their CGT return online via the HMRC’s government gateway. If you don’t have an account, you’ll need to apply for one. As this can take up to 10 days, make sure you have done this in advance of completing the sale.

Example for paying CGT

For a second home or buy to let property sold on 7 April 2024, the CGT return will need to be submitted and paid by 6 June 2024. The capital gains calculations will be included in the self-assessment tax return due by 31 January 2024. Should any further tax be payable or refund due, it will be calculated at this point. Any additional tax must be paid by 31 January 2024.

Private residence relief and partial private residence relief

If you have lived in the property as your main residence for the entire period of ownership, private residence relief means that any gain you make is exempt from CGT.

Special rules govern partial private residence relief if you have lived in the property for some of the time. If the property had been your home at some point, the last nine months prior to the sale are exempt from CGT (this used to apply for the last 18 months of ownership).

These rules also affect people who are purchasing a home before selling their old one. They now have just nine months to sell their old property to avoid a potential CGT charge.

HMRC assess applications for partial private residence relief based on the specific circumstances, such as the number of years you lived in the property and whether you lived in a second property that was job-related accommodation. You can fill out the CGT tax return summary pages to determine whether you qualify for private residence relief or partial private residence relief.

Want to find out more? It’s also worth weighing up selling your house for cash: pros and cons and reading about selling inherited property.

Lettings relief rules

Historically, if you sold a residential property that was once your main residence but had then been rented out, it was possible to deduct lettings relief of up to £40,000 from any capital gain.

However, changes introduced in April 2020 resulted in lettings relief only being available for people in shared occupancy with their tenant/tenants, so is no longer available to the vast majority of people.

Capital gains tax for UK non-residents

Previously, CGT did not apply to non-residents when disposing of a UK property or land. However, since the 6 April 2015, the Non-Residential Capital Gains Tax (NRCGT) was introduced for disposing of UK land.

If the property was purchased prior to this date, CGT is generally only applicable for the gain from the date NRCGT came into effect (6 April 2015). For properties purchased after 6 April 2015, NRCGT is applicable for the full period.

If the property was your main residence at some point, you may also be eligible for main residence relief over this period.

If you inherit your second property

When you inherit an asset, inheritance tax is usually paid by the estate of the person who has died. You only have to work out if you need to pay capital gains tax if you later decide to sell the property.

You will only have to pay CGT if you already own a property and inheriting a property means that you own two homes. You are required to inform HMRC which property is your main home within a deadline of two years. If you fail to inform them within the required period, HMRC will determine which property is regarded as your main home when it is sold.

Are further changes to CGT on the horizon?

There have been numerous changes to CGT in recent years and the Labour government increased CGT rates in the Autumn 2024 Budget, but these increases did not apply to residential property. It is likely that the government will apply changes to CGT for residential property in the future but there has not been any confirmation regarding this yet.

We can help

Calculating your tax obligations for property can be complicated, so it is a good idea to consult a tax specialist to ensure you comply with the rules and receive any relief that is applicable. If you are thinking of selling a second property in areas of Central London such as Primrose Hill or Regents Park, speak to us at Plaza Estates for all your property needs.

Looking to Sell or Let?

Begin your journey with a free property valuation.
Get the facts and figures to make informed decisions.

Book a Valuation

Property Valuation

"*" indicates required fields

VALUATION TYPE*

SALES

RENTAL

RENTAL & SALES

Property Address*

Property Postcode*

Full Name*

Email*

Contact Number*

Additional Information

View our privacy policy regarding website enquiries.

This field is hidden when viewing the form

office

Submit

Contact Us

"*" indicates required fields

First Name*

Last Name*

Phone/Mobile Number*

Email Address*

Message

View our privacy policy regarding website enquiries.

This field is hidden when viewing the form

office

Submit