Looking to sell a property that’s not your main home?
Tax might play a bigger role than you might expect. That initial sale price isn’t what you’ll end up with in your pocket – Capital Gains Tax (CGT) will take a chunk of your profits if you’re not careful.
Whether you’re parting with a rental property, a holiday home, or a property you inherited, understanding the tax implications before you sell could save you thousands.
From calculating your gain correctly to knowing which expenses you can deduct, getting this right makes a real difference to your final tax bill.
This guide breaks down what you need to know about selling a second property, the tax you might need to pay, and how to handle the whole process properly.
Capital Gains Tax: Understanding the Basics
CGT applies to the profit you make when selling a second property – whether that’s a holiday home, buy-to-let property, or inherited house. The amount you pay depends on three main factors: your tax band, when you sell, and your total income for the year.
Since 30 October 2024, the rates are:
- Higher or additional rate taxpayers pay 24% on residential property gains
- Basic rate taxpayers pay 18% on residential property gains (within their basic rate band)
- For any gains that push you above the basic rate band, you’ll pay 24%
The tax-free allowance for CGT is £3,000 for the 2024/25 tax year. For couples who jointly own the property, each person can use their allowance, potentially allowing £6,000 of gains tax-free.
How Your Tax Is Calculated
The calculation process is more complex than many realise. Here’s how it works:
- First, work out your taxable income (your income minus your Personal Allowance and any Income Tax reliefs).
- Then calculate your total taxable gains after deducting the CGT allowance. The combined figure determines which tax rate applies.
For example, if your taxable income is £20,000 and your property gains after the CGT allowance are £9,600, the total is £29,600.
If this falls within the basic rate band (£37,700 for 2024/25), you’ll pay 18% CGT. HMRC provides this example showing the tax due would be £1,728.
How Capital Gains Tax Works on Second Properties
Selling a property that isn’t your main home triggers CGT.
Understanding what counts as a second property and how the tax rules work is critical for making informed decisions about property sales.
Understanding Second Properties and Main Residence Rules
HMRC has strict criteria for determining whether a property counts as your main residence. It’s not just about where you spend most of your time.
A property qualifies as a second property if it’s not your nominated main residence, including:
- Holiday homes (UK or abroad)
- Buy-to-let properties
- Inherited properties
- Properties being renovated for sale
- Former homes you’ve kept after moving
When determining your main residence, HMRC considers multiple factors:
- Where you and your family spend time
- Where children attend school
- Voter registration address
- Bank and utility bill addresses
- GP and dentist registrations
- Car registration and insurance addresses
- Council tax status
- Correspondence address for official documents
Importantly, you can nominate which property is your main residence for CGT purposes, but you must do this within two years of acquiring a new property. For married couples or civil partners, you can only have one main residence between you.
Calculating Your Capital Gains
The calculation extends far beyond simple purchase and sale prices. You can deduct various costs to reduce your taxable gain:
Acquisition Costs
These include everything involved in purchasing:
- Original purchase price
- Stamp Duty Land Tax
- Legal fees and conveyancing
- Survey and valuation fees
- Mortgage arrangement fees
Improvement Costs
Only capital improvements that enhance value can be deducted:
- Building extensions
- Loft conversions
- Kitchen and bathroom renovations
- Central heating installation
- Double glazing installation
- Structural improvements
- New roof installations
- Rewiring
You cannot claim for:
- Regular decorating
- Garden maintenance
- Minor repairs
- Like-for-like replacements
- Any work done by previous owners
Disposal Costs
When selling, you can deduct:
- Estate agent fees
- Legal fees
- Early mortgage redemption penalties
- Marketing costs
- Valuation fees
Private Residence Relief and Special Cases
If you’ve lived in your second property at any point, you might qualify for partial Private Residence Relief (PRR). The final nine months of ownership are always exempt if you’ve lived there as your main home at some point.
For inherited properties, your acquisition cost is the market value at the date of death, not the original purchase price.
The timing of improvements matters – you can only claim for work done during your ownership period. Keep detailed records, including:
- Original purchase documents
- Improvement invoices and receipts
- Evidence of payment
- Planning permissions
- Building regulations certificates
Getting Professional Help
At Double Point, we help property owners understand these rules and maximise their tax efficiency.
Our team can:
- Review your property portfolio and advise on nominations
- Identify all allowable deductions
- Calculate your precise tax liability
- Ensure compliance with the 60-day reporting deadline
- Help maintain proper records
Contact us before making any decisions about your second property. We’ll help you understand your position and avoid costly mistakes.
