Capital Gains Tax on Selling a Second Home

If you’re considering parting ways with a property other than your main residence, you’ll need to consider Capital Gains Tax (CGT).

Whether you’re selling a quaint countryside cottage or a flat in the city, CGT will likely impact your profits – and it can be significant. 

This guide will explain what CGT is, how it works, and how to effectively reduce your tax bill while staying on the right side of HMRC.

The Fundamentals of Property Gains Tax

HMRC wants a share of the profit you make from your second home in the form of CGT.

CGT on second homes UK applies to various types of properties that aren’t your home, such holiday homes to buy-to-let investments. The amount you’ll need to pay depends on several factors:

1. The profit you’ve made on the sale (selling price minus purchase price and eligible costs)
2. Your overall income and tax rate
3. Any available allowances or reliefs

As of the 2024/2025 tax year, the rates stand at 18% for basic rate taxpayers and 24% for those in higher brackets. 

There are also allowances and potential reliefs to consider, which we’ll explore shortly.

Recent Changes to Property Tax 

Over the past few years, there have been many updates to CGT – and to be straight, most spell bad news for those who need to dispose of their assets!

Here’s a rundown of the key changes you need to be aware of:

1. The CGT tax-free allowance has been dramatically reduced. It now stands at just £3,000 for the 2024/2025 tax year, down from £12,300 in previous years. This means a larger portion of your profit may be subject to tax (any profits above £3,000 are taxed).
2. Higher earners saw a slight reduction in their CGT rate in the 2024 Spring Budget, down to 24% from the previous 28%. While this offers some relief, it doesn’t fully offset the reduced exempt amount for most sellers.
3. There’s a new 60-day reporting requirement. You now need to inform HMRC and pay any tax due within 60 days of completing your sale. This is a substantial change from the previous system, where you could wait until the next tax year to report and pay.

Next, we’ll thoroughly define what a ‘non-primary residence’ counts as. 

Defining a Non-Primary Residence for Tax Purposes

When it comes to capital gains tax on second homes in the UK, it’s essential to know exactly what qualifies as a ‘second home’ or ‘non-primary residence’.

The rules can be nuanced, and misunderstanding them could lead to unexpected tax bills or missed opportunities for relief. Here’s what you need to know:

1. Your main home, where you live most of the time, typically qualifies for Private Residence Relief, exempting it from this tax when sold.
2. Other properties you own may be subject to capital gains tax when sold. This includes holiday homes, rental properties, and inherited homes you don’t occupy.
3. If you’ve moved out of a property and started letting it, it may be partially exempt and partially taxable when sold.
4. There’s no set time you need to live in a property for it to be considered your main home, but you’ll need evidence that you genuinely lived there if HMRC investigates.
5. If you’ve moved out of a property and started letting it, it may be partially exempt and partially taxable when sold. The proportion of time you lived in the property and the last nine months of ownership may be exempt under PRR, but the time it was rented out is subject to CGT.
6. Letting Relief is available in some cases, allowing you to reduce the taxable gain on a property that was both your home and let out. This relief can cover up to £40,000 of the taxable gain if you meet the eligibility criteria.

If you’re selling a home other than the one you live in for the majority of the time, you should get professional advice on CGT.

Moreover, if you have two or more homes and split your time between them, they might all be subject to CGT when you sell them. Professional help from trained accountants like us at Double Point is vital if you’re at all unsure of whether these situations apply to you. 

Property Ownership Changes and Their Tax Implications

Whether you’re relocating for work, expanding your family, or simply seeking a change of scenery, your move could change how tax is charged when selling property. 

Here’s how recent changes in your living situation might affect your tax position:

1. If you have more than one home, you can nominate which one should be treated as your main residence for tax purposes by election. You have two years from when your combination of residences changes to make this nomination to HMRC.
2. The last 9 months of ownership are always exempt from capital gains tax, even if you weren’t living in the property during this time. This is known as the ‘final period exemption’.
3. The ’36 month rule capital gains tax UK’ still applies in some cases. While it’s been reduced to 9 months for most people, those who are disabled or moving into long-term residential care can still claim the full 36 months of exemption.
4. When you buy a new home before selling the old one, both properties can be treated as your main residence for up to 9 months, potentially reducing your tax liability.

Strategies to Minimise Your Tax Bill

While capital gains tax on second home sale can’t be avoided entirely, there are several strategies you can employ to reduce your tax liability.

By understanding these methods and planning ahead, you could potentially save thousands of pounds when it comes time to sell. Here are some key strategies to consider:

1. Use your annual exempt amount: You get £3,000 tax-free. If you’re selling jointly with a spouse or civil partner, that doubles to £6,000.
2. Deduct eligible costs: You can offset certain expenses against your gain, including stamp duty paid when you bought the property, estate agent and solicitor fees, and costs of significant improvements (but not general maintenance).
3. Consider shared ownership: If you’re married or in a civil partnership, transferring part ownership to your spouse, especially if they’re in a lower tax bracket, could reduce your overall bill. Seek professional advice to do this while maintaining compliance with the law. 
4. Check for available reliefs: If you’ve ever used the property as your main home, you might be eligible for some Private Residence Relief.

CGT Advice With Double Point

As you can probably tell by now, selling a second home involves careful considerations. 

Of course, every property sale is unique, and what works for one seller may not be the best approach for another. That’s where expert guidance becomes invaluable.

At Double Point, we can help property owners understand if and when CGT applies to their property sales. 

Whether you’re planning to sell a holiday home, considering transferring ownership, or simply want to understand your tax position better, we’re here to help. We can assist you in:

• Calculating your potential tax liability
• Identifying all eligible deductions and reliefs
• Developing strategies to minimise your tax bill
• Ensuring compliance with HMRC regulations
• Handling the reporting and payment process

Don’t let tax concerns overshadow your property sale. Book a consultation with Double Point today to discuss how to reduce CGT while staying compliant.