When you sell a second home in the UK, Capital Gains Tax applies to the profit you make. The gain is taxed at 18% for basic rate taxpayers and 24% for higher rate taxpayers, after a £3,000 annual tax-free allowance. You must report and pay within 60 days of completion.
For a property that has risen substantially in value over many years of ownership, the bill can easily reach tens of thousands of pounds. How much you ultimately pay depends on which reliefs apply to your situation, how the disposal is structured, and when it completes. This guide explains how CGT is calculated on a second home sale, which reliefs are available, and the planning steps that can materially reduce your liability before you exchange contracts.
Capital Gain on Sale of Residential Property
A capital gain arises when an individual sells or transfers an asset for more than its original cost. For CGT purposes, the gain is broadly calculated as the sale proceeds less the acquisition cost and any allowable costs.
Residential property is a chargeable asset for CGT purposes. However, where the property qualifies as an individual’s only or main residence, Private Residence Relief may exempt all or part of the gain.
For the 2025/26 tax year the rates are as shown in the table:
Taxpayer Type | Capital Gain Tax Rate |
|---|---|
- Basic Rate taxpayer | 18% |
- Higher or additional rate taxpayer | 24% |
Every individual has an annual CGT exemption. The gains below this threshold are not taxed. For 2025/26 the exemption is £3,000. Any gain above this amount is taxable at the rates above.
The rate of Capital Gains Tax on residential property depends on whether the gain falls within the taxpayer's unused basic rate band. Your taxable gain is added to your income for the year when determining which rate applies. This means a basic rate taxpayer who makes a large gain can end up paying both rates: 18% on the portion that falls within their remaining basic rate band, and 24% on the rest.
Private Residence Relief
If a taxpayer sells their only or main residence, Private Residence Relief (PRR) may exempt all or part of the gain arising.
The term private residence means a dwelling house and includes any relevant buildings within the main house. The relief also covers a garden of up to half a hectare (including the site of the house), or larger if required for reasonable enjoyment of the property.
PRR is available where the property has been the individual’s only or main residence. However, the relief may be restricted if part of the property has been used exclusively for business purposes, if the property was not occupied as a main residence for the full period of ownership, or if the permitted area of garden or grounds is exceeded (subject to the reasonable enjoyment rules).
The amount of the relief available is.
Gains
X
Period of occupation of property/Period of ownership
=
Private Residence Relief
Occupation includes both actual and deemed occupation.
The last nine months of ownership always count as deemed occupation as long as the house was occupied at some point by the taxpayer.
In conclusion, if you sell your main home where you have lived all the time, you will not have to pay Capital gains tax.
Maximize Your Property Gains with "Private Residence Relief ". Explore our article for expert guidance and tips."
Reduce the Capital Gain Tax on Sale of Second Home
Capital Gains Tax (CGT) is a tax on the profit made from selling certain assets, such as property, shares, or other investments.
If you sell a second home in the UK, you will need to pay capital gains tax on second property on the profits you make.
Here are some ways to reduce the CGT on the sale of a second home
Annual Exemption
As discussed, the annual exemption is a tax-free allowance that individuals have for capital gains tax purposes. For the tax year 2025/26, the annual exemption is £3,000, which means that total gains made in the tax year up to this amount are exempt from CGT.
However, any unused annual exemption is lost and cannot be carried forward or transferred to another person. It's important to plan your disposals and take advantage of the annual exemption.
Capital Gains Tax on residential property is triggered at completion, not at exchange of contracts. If you want to push a disposal into the next tax year to use a fresh annual exemption, the completion date determines which tax year the gain falls into.
Private Residence Relief with more than one residence
We will now look into how we deal with the situation where an individual has more than one private residence available for them to use as a home at any given time.
If no action is taken, HMRC will determine which of the two properties should be considered the principal private residence for CGT purposes. Typically, the property that is most frequently used as a residence will be considered the primary residence.
However, the taxpayer may opt to designate one of the residences as their principal residence for purposes of capital gains tax.
If a taxpayer wishes to designate one of their residences as their primary residence, they must do so within two years of the date from which they had two residences. The individual must actually reside in both properties in order to make the selection.
This means that if a taxpayer owns two properties, one of which is their primary residence and the other is rented out, the primary residence will be automatically eligible for PRR, and no nomination will be possible.
The taxpayer will typically designate as their primary residence the asset that has the highest capital gain. A taxpayer's primary residence is not required to be the one at which they spend the majority of their time.
Letting Relief
Lettings Relief is now very limited. It generally applies only where the owner is living in the property as their main residence at the same time as letting out part of it, for example where the owner has a lodger (shared occupancy).
Letting Relief is available where part of a dwelling house is the individual’s main residence, and another part of the house is let out as residential accommodation.
As the tenant has the exclusive right to the part of the property, Private Residence Relief will not be allowed on that part of the property but letting relief will be.
Where available, Lettings Relief is the lower of:
- Capital Gain attributable to the let out part.
- Private Resident Relief
- £40,000
Deduct Allowable Costs
You can deduct certain costs from taxable gains to reduce the CGT you pay on your property, including:
- Stamp Duty paid when buying the property
- Estate agents’ fees
- Solicitors’ fees
- Certain other buying and selling costs, e.g. surveyor
- Costs for improvements to the property, e.g. an extension, kitchen upgrade, etc.
Routine repairs and maintenance costs are not deductible for CGT purposes, but capital improvements that add value or extend the property’s useful life may be allowable.
In summary, if you have lived in the property as your main residence for the entire period of ownership, you may be able to claim Private Residence Relief.
You can also deduct certain costs from taxable gains to reduce the CGT you pay on your property. It's important to keep a record of all the costs incurred to support your claim.
Timing your disposal
The tax year in which your sale completes determines which year's income is used to calculate your CGT rate.
Example
If you complete on 3 April 2026 the gain falls into the 2025/26 tax year, complete on 8 April 2026 and it falls into 2026/27. A five-day difference in completion date can mean an entirely different set of income figures, from a different tax year.
The year you retire, reduce your hours, or make a sizeable pension contribution is often the best year to sell. Your income is lower, which means more of the gain sits in the basic rate band.
If you have not yet retired, pension contributions are one of the few levers available to actively reduce your income in the year of sale. Each pound contributed gross extends your basic rate band by a pound, meaning more of the gain is taxed at 18% rather than 24%.
Offsetting Capital Losses
If you have made losses on other capital asset disposals whether other investment properties, shares, or other chargeable assets then those losses can be set against the gain from your second home sale, reducing the amount subject to tax. Losses must be formally claimed, either on your self-assessment tax return or by writing directly to HMRC.
You can claim losses from disposals up to four years after the end of the tax year in which they arose. Current-year losses are applied before brought-forward losses, and both are applied before the annual exemption is deducted.
For landlords and investors with a portfolio, identifying assets sitting on unrealised losses and crystallising them in the same tax year as a large gain can produce a meaningful reduction in the overall bill.
Transfer of Ownership
Transfers between spouses and civil partners are treated as no-gain-no-loss transactions for CGT purposes, meaning no tax arises on the transfer itself. If your spouse has unused annual exemption or falls within the basic rate band, transferring a share of the property before sale means their portion of the gain benefits from their own annual allowance and may be taxed at basic rate. Where your spouse also holds capital losses from other disposals, those losses can be set against their share of the gain after the transfer, reducing it further.
The transfer must be legally completed before contracts are exchanged on the onward sale. A transfer signed after exchange does not produce the same CGT result. Because the saving depends on your spouse's income, loss position, and the sequencing of both transactions, this is a strategy that needs to be structured before you agree a sale timeline.
Conclusion: Navigating Capital Gains Tax on Second Home Sales
CGT on a second home sale is one of the few tax liabilities where the decisions you make before completion directly determine the size of the bill. A nomination election missed, a spousal transfer not completed in time, a pension contribution not made before the tax year ends, each is recoverable in theory but not in practice once the sale is underway.
The earlier you review your position, the more options remain open. If you are approaching a second home sale and want to understand which strategies apply to your circumstances, speak to one of our property tax advisers before you agree a completion date.
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FAQs
Not automatically. If you sell your main home and there is a gap before you acquire a new one, you do not lose CGT protection on any future main residence provided you occupy the new property as your main home. The risk arises if you own two properties simultaneously and fail to make a nomination within two years, at that point HMRC determines which property qualifies, which may not be the one you would have chosen. Taking advice at the point of acquisition rather than disposal avoids this.
Yes. The 60-day reporting obligation applies to all UK residential property disposals regardless of whether any tax is owed. Sales where the gain is fully covered by Private Residence Relief, the annual exemption, or capital losses must still be reported. Failing to file even a nil-tax return can result in a late filing penalty.
When you inherit a property, your acquisition cost for CGT purposes is the market value at the date of death, not the original purchase price paid by the deceased. This is known as the probate value, and your taxable gain on any subsequent sale is calculated from that figure not from what the deceased originally paid. If the property has not risen significantly in value since the date of death, the taxable gain will be small.
Where the property is sold by the executors as part of the estate before it passes to a beneficiary, CGT may arise on any gain from probate value to sale price. In that case it is the estate that is liable, and the estate has its own annual CGT exemption for the tax year of death and the two following years.
Yes. Where a property is held in joint names, each owner is assessed on their own share of the gain independently, at their own rate. A co-owner in the basic rate band pays 18% on their share rather than 24%, and each has their own £3,000 annual exemption. The ownership split for CGT follows the actual legal ownership, and any change to that split should be formally documented and legally completed before contracts are exchanged on the sale.
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