If you’re selling a second property – a buy-to-let, a holiday home, an inherited house – you’ll almost certainly face a Capital Gains Tax (CGT) bill.
Unlike your main residence, second homes don’t benefit from the blanket Private Residence Relief that makes your primary home tax-free.
With the annual CGT exemption now at a historic low of £3,000, rates of up to 24%, and a strict 60-day reporting window, getting this wrong can be expensive. But with the right planning, there are legitimate ways to reduce what you owe.
Here’s how CGT works when you sell a second home, and what you can do to keep the bill as low as possible.
How CGT on Property Works
Capital Gains Tax is charged on the gain you make when you sell a property, not on the sale price itself. The gain is the difference between what you paid for the property (the “base cost”) and what you sold it for, after deducting allowable costs.
So if you bought a flat for £200,000, spent £15,000 on improvements, paid £3,000 in buying costs and £5,000 in selling costs, and sold it for £350,000, your gain would be:
£350,000 – £200,000 – £15,000 – £3,000 – £5,000 = £127,000
You’d then deduct your annual exempt amount (£3,000), leaving a taxable gain of £124,000. The tax you pay on that depends on your income tax band.
The Rates
CGT rates on residential property are:
- 18% for gains falling within the basic rate income tax band
- 24% for gains above the basic rate band (higher and additional rate taxpayers)
These rates have been in place since October 2024. They apply specifically to residential property – your second home, a rental property, a holiday let.
The rate you pay depends on your total taxable income for the year plus your capital gain. Your gain is effectively stacked on top of your income. If your income uses up the basic rate band (which runs to £50,270), the entire gain is taxed at 24%. If there’s room in the basic rate band, part of the gain may be taxed at 18% and the rest at 24%.
The Annual Exempt Amount
For 2026/27, the annual exempt amount is £3,000 per person. This is the first £3,000 of your total gains in the tax year that are free from CGT.
This allowance has been cut dramatically in recent years – it was £12,300 as recently as 2022/23. At £3,000, it provides very little shelter for property disposals where gains are typically much larger.
If you own the property jointly with a spouse or civil partner, you each have your own £3,000 exemption – potentially shielding £6,000 of gain between you.
The exemption cannot be carried forward. If you don’t use it, you lose it.
What You Can Deduct
The higher the costs you can legitimately deduct, the lower your taxable gain. HMRC allows you to deduct certain costs from both the acquisition and disposal sides. These fall into a few categories:
- Costs of buying the property: stamp duty, legal fees, survey costs
- Costs of selling the property: estate agent fees, legal fees, marketing costs
- Improvement costs: anything that enhanced the value of the property, such as an extension, a new kitchen, or a loft conversion
What you can’t deduct is general maintenance and repair costs. Repainting a room, fixing a boiler, or replacing like-for-like fittings don’t count as improvements – they’re maintenance, and HMRC draws a clear line between the two.
Keep receipts for everything. If you can’t evidence a cost, you can’t claim it.
The 60-Day Reporting Rule
This is one of the most important rules for property sellers, and it catches people out regularly.
If you sell a residential property and there’s CGT to pay, you must report the disposal and pay the tax within 60 days of completion. This applies even if you normally file a Self Assessment return – the 60-day deadline comes first.
You report through HMRC’s online CGT property disposal service. You’ll need the completion date, the sale price, your base cost, any allowable deductions, and an estimate of your other income for the year (to work out which rate applies).
If you miss the 60-day window, you’ll face an automatic £100 late filing penalty, with further penalties and interest charges if the delay continues. You’ll also need to include the disposal on your Self Assessment return for the year, even though you’ve already reported and paid through the property disposal service.
Reliefs That Can Reduce Your Bill
Several reliefs exist that can reduce or eliminate CGT on a second home, depending on the property’s history.
Private Residence Relief
Your main home is usually exempt from CGT entirely under Private Residence Relief (PRR). But PRR can also apply to a second property if it was your main residence at some point.
If you lived in the property as your main home for part of the time you owned it, PRR covers the gain attributable to that period. You also get relief for the final nine months of ownership automatically, regardless of whether you were living there at the time. This final period exemption used to be 18 months – it was reduced in April 2020.
If you own two properties and both could qualify as your main home, you can nominate which one counts for PRR purposes. This nomination must be made within two years of acquiring the second property. Getting this right (or wrong) can make a substantial difference to the CGT bill on whichever property you eventually sell.
Lettings Relief
Lettings Relief used to be a generous relief for landlords, but it was significantly narrowed from April 2020. It now only applies where you’ve let out a property that was also your main residence and you shared the property with the tenant – i.e., you both lived there at the same time.
Where it does apply, the relief is capped at £40,000 per person (£80,000 for a couple). In practice, this limits the relief to people who let out a room in their own home rather than landlords who moved out and rented the whole property.
Capital Losses
If you’ve made a capital loss on another asset in the same tax year – or you’re carrying forward unused losses from previous years – those losses can be set against your property gain before CGT is calculated.
Losses must be used against gains in the same tax year first. Any excess can be carried forward indefinitely, but you can choose how much of a brought-forward loss to apply – you don’t have to use more than is needed to bring your gain down to the annual exempt amount.
Strategies to Reduce CGT
Beyond reliefs, there are several practical strategies that can legitimately reduce your CGT liability when selling a second home.
Transfer to a Spouse Before Selling
Transfers between spouses and civil partners are treated as “no gain, no loss” – no CGT arises at the point of transfer. If one partner has unused basic rate band or an unused annual exemption, transferring a share of the property to them before the sale can mean more of the gain is taxed at 18% rather than 24%.
Both parties then use their own £3,000 exemption, potentially sheltering £6,000 of the gain.
This needs to be done properly. The transfer must be genuine and you need to be living together as spouses at the time.
Time the Sale Around Your Income
Since the CGT rate depends on your total income for the year, selling in a year when your income is lower can push more of the gain into the 18% bracket. If you know you’ll be taking a career break, reducing your hours, or retiring, timing the sale to coincide with that lower-income year can make a real difference.
Keep Evidence of Improvement Costs
Every pound you can legitimately add to your base cost reduces the taxable gain. The most commonly missed deductions are improvement costs from years ago – extensions, new bathrooms, rewiring, replacement windows. If you’ve owned the property for a long time, it’s worth going back through your records (or your bank statements) to identify costs that qualify.
Use the Annual Exempt Amount
If you have other assets to dispose of – shares, for example – consider whether you’re making best use of your £3,000 exemption each year. Selling a small number of shares each year to use the exemption can preserve it for years when you need it most.
Looking Ahead: Property Income Tax Changes from April 2027
While not directly a CGT issue, it’s worth noting that from April 2027, income tax rates on property income are rising by two percentage points. The basic rate will move to 22%, the higher rate to 42%, and the additional rate to 47%. This only affects individuals – limited companies will continue to pay corporation tax on rental profits at the standard rates.
For landlords considering whether to sell or hold, this is another factor in the equation. Our article on the landlord’s guide to 2026 covers these changes in more detail.
How Double Point Can Help
Selling a second home involves more tax planning than most people expect. The interaction between your income, the gain, the available reliefs, and the 60-day reporting deadline means it pays to get advice before you complete the sale – not after.
At Double Point, our tax planning team works with property owners to calculate the expected CGT liability ahead of time, identify all available reliefs and deductions, structure the disposal to minimise tax, and handle the 60-day reporting on your behalf. We also prepare the Self Assessment return that follows.
If you’re thinking about selling a second property, get in touch before you accept an offer.
Book a free consultation with us today and let’s work out the most tax-efficient way to handle the sale.