If you sell a second home in the UK such as a buy-to-let property, holiday home, or inherited property you may have to pay Capital Gains Tax (CGT) on the profit made. Unlike your main residence, second homes do not automatically qualify for full tax relief.
That said, there are legal and HMRC-approved ways to reduce or eliminate CGT with proper planning. This guide explains how CGT works on second homes and what reliefs may be available.
What Is Capital Gains Tax on a Second Home?
Capital Gains Tax is charged on the profit you make when selling an asset that is not your main residence.
Capital gain calculation:
Sale price
– Purchase price
– Allowable buying and selling costs
– Capital improvement costs
= Taxable gain
CGT rates on residential property (2024/25):
- 18% for basic-rate taxpayers
- 28% for higher-and additional-rate taxpayers
Each individual also has an annual CGT allowance of £3,000.
1. Use Your Annual Capital Gains Tax Allowance
Every UK taxpayer can realise up to £3,000 in capital gains each tax year without paying CGT.
How this helps:
- If your gain is below the allowance, no CGT is payable
- Married couples and civil partners can combine allowances, reducing gains by £6,000
Planning tip: If possible, time the sale to fall across different tax years to use more than one allowance.
2. Claim Principal Private Residence (PPR) Relief (If Applicable)
If the second home was genuinely your main residence at any point, you may be entitled to partial PPR relief.
HMRC considers:
- Length and continuity of occupation
- Quality of occupation (not just occasional stays)
- Evidence such as council tax, electoral roll, and correspondence
Important: Simply owning or briefly staying in the property does not qualify. HMRC may challenge short or artificial periods of occupation.
3. Use the Final 9 Months Exemption (Conditional)
If the property qualified as your main residence at any time, the final 9 months of ownership may still qualify for PPR relief, even if you were not living there when you sold it.
This relief does not apply if the property was never your main residence.
4. Deduct Allowable Costs to Reduce the Gain
You can deduct certain costs to reduce your taxable gain, including:
- Stamp Duty Land Tax (SDLT) paid on purchase
- Legal and conveyancing fees
- Estate agent fees
- Capital improvement costs (e.g. extensions, structural changes)
Not allowed:
- Routine repairs or maintenance
- Mortgage interest
5. Transfer a Share to Your Spouse or Civil Partner
Transfers between spouses or civil partners are CGT-free.
Benefits:
- Both partners can use their CGT allowance
- Gains may be taxed at a lower rate if one partner is a basic-rate taxpayer
Important: The transfer must be completed before exchange of contracts, not after a sale is agreed.
6. Offset Capital Losses
If you have capital losses from other assets (such as shares or property), these can be used to offset gains on your second home.
- Losses must be reported to HMRC
- Unused losses can be carried forward indefinitely
This is one of the most effective CGT reduction strategies.
7. Lettings Relief (Limited Availability)
Lettings Relief is now very restricted and applies only if:
- The property was your main residence at some point, and
- You lived in the property at the same time as tenants
Most buy-to-let landlords will not qualify.
8. Sell in a Lower Income Year
CGT rates depend on your income level in the year of sale.
You may reduce CGT by selling when:
- Your income is lower
- You have retired
- You are between jobs or working reduced hours
This can move part of the gain into the lower CGT band.
9. Inheritance and Long-Term Planning
Capital Gains Tax is not charged on death. Instead, the property’s value is reset to market value for inheritance purposes.
Important clarification: This does not remove Inheritance Tax liability and should be considered part of long-term estate planning not short-term tax avoidance.
Professional advice is essential in this area.
Reporting and Paying CGT
For UK residential property:
- Capital Gains Tax (CGT) must be reported and paid within 60 days of completion.
- Late reporting can result in penalties and interest
Final Thoughts
You cannot simply “avoid” Capital Gains Tax on a second home but with correctplanning, legitimate reliefs, and good timing, you can significantly reduce your tax bill. The key is acting before selling, not after. If you’re planning to sell a second home and want to reduce your CGT liability legally and efficiently, professional advice can help you avoid costly mistakes and stay fully compliant with HMRC rules.