Selling a Second Home: CGT Rules You Need to Know

Selling a second home can deliver a substantial financial boost, but there's a tax obligation that catches many property owners off guard: Capital Gains Tax. Whether you're disposing of a buy-to-let in Bolton, a holiday cottage in the Lake District, or an investment property in Manchester, understanding CGT rules is essential to protect your profit and avoid penalties.

What Is Capital Gains Tax on Second Properties?

Capital Gains Tax applies to the profit you make when selling a second property. If you bought a property for £150,000 and sold it for £250,000, you'd potentially owe CGT on the £100,000 gain, after deducting allowable expenses and your annual exemption. Your main residence is usually exempt, but second homes and buy-to-let properties typically attract a tax charge.

Current CGT Rates and Allowances

The annual CGT allowance is £3,000 per person for 2025/26—dramatically reduced from £12,300 just a few years ago. Couples who jointly own property can combine allowances for £6,000 total. Tax rates are 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers, depending on your total taxable income including the gain.

The Critical 60-Day Reporting Rule

Here's where many sellers stumble. When you sell a UK residential property that creates a CGT liability, you must report it and pay the estimated tax to HMRC within 60 days of completion not exchange. Missing this deadline triggers automatic penalties: a £100 fine immediately, plus daily interest on unpaid tax.

Many assume they have until the Self-Assessment deadline in January, but that's incorrect. You'll need to calculate your gain, submit a property disposal return, and make payment within that tight 60-day window. The only exception is for sales completing in February or March where you file your Self-Assessment return within 60 days.

What Costs Can You Deduct?

Several allowable expenses reduce your taxable gain. Purchase and sale costs including solicitor fees, estate agent fees, and Stamp Duty Land Tax all qualify. Capital improvements like extensions, loft conversions, or installing central heating for the first time can be deducted, but routine maintenance cannot. The key distinction: replacing an old kitchen is maintenance; reconfiguring to create an open-plan space is an improvement.

Private Residence Relief

If you've lived in your second property as your main home, you might qualify for Private Residence Relief. This exempts gains for periods when it was your residence, plus the final nine months of ownership. If you owned a property for ten years, lived there for eight, then rented it out for two, you'd get relief for those eight years plus the final nine months.

Smart Strategies to Reduce Your CGT Bill

Transferring property between spouses or civil partners is CGT-neutral, allowing you to use both annual exemptions and potentially benefit from different tax rates. Offsetting capital losses from other assets like shares can reduce your property gain, and losses can be carried forward indefinitely.

Timing matters too. Selling after 6 April means accessing a fresh annual exemption. If your income will drop next year, delaying the sale might mean paying 18% instead of 24%. Maximizing pension contributions can also pull some of your gain into the basic rate band.

Common Mistakes to Avoid

Don't assume Private Residence Relief covers your entire ownership period it only applies to actual residence periods plus the final nine months. Always document improvements with receipts and photographs; without evidence, HMRC won't accept deductions. Never gift property to family without professional advice, as you'll still face CGT based on market value.

Get Expert CGT Guidance

Capital Gains Tax calculations become complex quickly, especially for properties with mixed use or significant improvements. Professional accountants can identify all allowable deductions, apply optimal reliefs, ensure you meet the 60-day deadline, and structure ownership to minimize tax.

At YRF Accountants, our property tax specialists help clients across Bolton, Manchester, and the wider UK navigate CGT obligations with confidence. From calculating your liability to meeting critical deadlines, we handle the complexity so you can focus on your next opportunity.

Frequently Asked Questions About Second Home CGT

Q: Do I pay CGT if I sell my second home at a loss?
A: No CGT is due on losses, but you should report the loss to HMRC to offset against future gains.

Q: Can I avoid CGT by gifting my property to family?
A: No. Gifts are treated as disposals at market value, and you'll still face a CGT charge based on the property's current worth.

Q: What happens if I miss the 60-day reporting deadline?
A: HMRC charges a £100 automatic penalty immediately, plus daily interest on unpaid tax. Further penalties accrue if the delay continues.

Q: Does CGT apply to inherited properties?
A: Not immediately. You inherit at market value on the date of death, but CGT applies when you subsequently sell if the value has increased.

Q: Can I claim CGT relief if I rented out part of my main home?
A: Partial Private Residence Relief may apply, but the calculation becomes more complex. Professional advice is strongly recommended.