Capital Gains Tax on Second Home: A Complete UK Guide

You'll usually pay Capital Gains Tax (CGT) when you sell a second home for more than you paid for it. 

The amount you owe depends on your profit, your Income Tax band, and your eligibility for any tax reliefs. 

This guide will explain when CGT applies to a second home, how to calculate your gain, what the current UK tax rates are, and what you can do to reduce your CGT bill.

Key points

• Your tax bill depends on your gain, not the sale price 💷
  You only pay CGT on your taxable gain after deducting eligible costs, such as the purchase price, solicitor fees, Stamp Duty, selling costs, qualifying improvements, and your annual £3,000 CGT exemption.
• The timing of your sale can affect how much tax you pay 📅
  Residential property gains are taxed at 18% or 24%, depending on how much of your gain falls within your remaining basic rate Income Tax band. Selling in a year when your taxable income is lower could reduce your overall CGT bill.
• Don't overlook reliefs and reporting deadlines ✅
  Reliefs such as Private Residence Relief, capital losses, and spousal transfers can reduce your tax bill. If you owe CGT, you'll usually need to report the sale and pay an estimate of the tax within 60 days of completion.
• Keep accurate records from day one with ANNA 🚀
  If your second home is a rental property, ANNA helps you stay organised with digital bookkeeping, receipt storage, tax estimates, and MTD for landlords support, making it easier to stay compliant and prepare for tax time.

What counts as a second home for Capital Gains Tax

A second home is any residential property you own that isn't covered by Private Residence Relief. That includes:

• A holiday home you use a few weeks a year
• A buy-to-let property you rent out
• A house you inherited and haven't lived in
• A flat you bought for a family member to live in
• A former main home you moved out of and kept

To judge if a property is classified as a second home, HMRC looks at the pattern of use. For example, a flat you inherited and left empty while you decided what to do with it is still a second home, even though you never chose to own it in the first place.

Conversely, a property you bought with a partner but never registered as your main address counts too, regardless of how much time you spend there.

Where things get more complicated is mixed-use property. If you've run a business from part of the building, or let out a room while living in the rest, only the portion used as your home qualifies for relief. 

The remainder is treated as a separate disposal for CGT purposes, and you'll need to apportion the gain between the two uses, typically based on floor area or the split HMRC accepts for your specific case.

💡 Did you know? 

If your second home is a buy-to-let, you may also need to comply with Making Tax Digital for Income Tax (MTD for ITSA). 

ANNA's MTD for Landlords service helps you keep digital records, submit quarterly updates, and stay compliant with HMRC. 

Rates for Capital Gains Tax on second homes in 2026/27

For the 2026/27 tax year, CGT on residential property is charged at 18% or 24%, depending on how much of the gain falls within your basic rate Income Tax band. 

The current annual exempt amount is £3,000 per person. 

This means the first £3,000 of your total capital gains each tax year is tax-free. The exemption can only be used once per tax year and can't be carried forward if you don't use it. 

How the rates are applied

Your taxable capital gain is added to your taxable income for the year.

Any part of the gain that falls within your remaining basic rate Income Tax band is taxed at 18%. Any amount above that threshold is taxed at 24%.

This means your salary or other taxable income affects how much of your gain qualifies for the lower rate. If you've already used most or all of your basic rate band, a larger share of your gain will be taxed at 24%.

How to work out your taxable gain

The calculation is straightforward once you've got your paperwork together.

Start with the sale price (or market value if you gifted the property or sold it to a connected person), and deduct:

• The amount you originally paid for the property, or the probate value if you inherited it
• Buying costs, such as solicitor fees, stamp duty, and survey fees
• The cost of capital improvements, like an extension or a loft conversion
• Selling costs, such as real estate agent and legal fees
• Your £3,000 annual exempt amount from what's left

Whatever remains is your taxable gain, and that's the figure the 18%/24% split applies to.

Capital improvements vs maintenance

It’s important to distinguish between a capital improvement and routine maintenance. A new kitchen or an extra bedroom counts as an improvement because it adds value or changes the property. 

Repainting a room, fixing a leaking pipe, or replacing a broken boiler with a like-for-like model don't count, because you're restoring the property rather than improving it. If you're not sure which side of the line something falls on, it's a good idea to check with an accountant before you build it into your calculation.

You also need to think about what happened before you owned the property outright. If you extended a lease, paid a premium to a freeholder, or settled a boundary dispute that affected the property's value, those costs can usually be included too, as long as you've kept the paperwork to prove it.

🧠 Good to know: 

Keep every invoice and receipt tied to the property. HMRC can ask for evidence years after the sale, and a missing receipt for a new kitchen could cost you real money in extra tax.

Capital Gains Tax calculation: An example

Suppose you sell a buy-to-let flat you've owned for eight years. You earn a salary of £35,000. After deducting your £3,000 annual exempt amount and allowable costs, such as stamp duty, agent fees, and a kitchen refit, your taxable capital gain on the sale is £40,000.

After your Personal Allowance, your taxable income is £22,430, leaving £15,270 of the basic rate band available.

In this case, the first £15,270 of your gain is taxed at 18%, for a total of £2,748.60. The remaining £24,730 is taxed at 24%, for £5,935.20.

The total CGT due is £8,683.80

If your taxable income already exceeds £50,270, you've used your entire basic rate band, so your whole taxable gain will be taxed at 24%.

How to report and pay your CGT on a second home

If you have CGT due on UK property, you have to report the gain and pay an estimate of the tax within 60 days of the official ownership transfer date (called completion). This is separate from your Self Assessment return and goes through HMRC's online property reporting service.

If there's no CGT to pay, because the gain is covered by your annual exempt amount or by Private Residence Relief, you don't need to file the 60-day report at all.

The clock starts on completion, not on exchange of contracts. Miss the deadline, and you'll face:

• A £100 penalty straight away
• A further penalty at 6 months, whichever is higher out of £300 or 5% of the tax owed
• Another penalty at 12 months on the same basis
• Daily penalties of £10 after 3 months
• Interest on the unpaid tax from day 61

If you already complete a Self Assessment return, include the gain there too. The 60-day report is an early estimate, and your Self Assessment return finalises the figure once your full income for the year is known, so you may owe a top-up or be due a refund.

What about non-UK residents?

If you're a non-UK resident, you face the same 60-day deadline, but with one important difference. You have to report every disposal of UK residential property, whether it produces a gain, a loss, or nothing at all. 

UK residents only need to report when there's tax to pay, so if you've moved abroad and still own a property here, don't assume the reporting rules have relaxed just because you're no longer resident.

Reliefs that can reduce your bill

You can reduce your CGT bill with several reliefs, so before you calculate your tax, make sure you check if you’re eligible for any of them.

Private Residence Relief

If the property was your main home for part of the time you owned it, that portion of the gain is exempt. The final nine months of ownership are always treated as exempt too, even if you'd already moved out, as long as it was your main residence at some point. 

This means if you lived in a property for three years out of a ten-year ownership period, you'd get relief on three years plus the final nine months, and pay CGT on the remaining portion of the gain.

Losses from other disposals

If you've sold other assets at a loss this year, or you've got losses carried forward from previous years, you can set those losses against the gain before your annual exempt amount is applied. 

You have to report your losses to HMRC within four years. A loss on shares or another property can meaningfully reduce what you owe on the sale, so it's a good idea to review your full disposal history for the year before you file.

Spousal transfers

Transfers between spouses or civil partners occur on a no-gain, no-loss basis. If one of you has unused basic rate band or hasn't touched their annual exempt amount, transferring part ownership before the sale can lower the combined tax bill. 

This has to happen before the sale completes, so you should plan ahead, before the property is under offer.

Joint ownership

If the property is owned jointly, each owner reports their own share of the gain and uses their own £3,000 allowance. That effectively doubles the tax-free amount for a couple, and each person's rate depends on their own income, not a combined figure.

The rules around partial relief and letting periods are specific, so if any of this applies to you, you may benefit from professional advice before you file.

Selling to family or gifting the property

If you sell below market value to a connected person, such as a relative, or give the property away outright, HMRC still calculates your gain using the property's actual market value.

This often trips up families trying to keep a property ‘in house’ at a friendly price. 

Get an independent evaluation at the time of transfer so you have a defensible figure if HMRC ever looks into it.

The same rule applies if you sell to a company you control, or to a trust you've set up. HMRC treats these as transactions between connected parties and substitutes the market value for the actual price when the two differ. 

How ANNA helps landlords and second home owners

Selling a second home often means pulling together years of purchase records, legal fees, and improvement costs. If you've rented out the property, you'll also need accurate records of your rental income and expenses.

ANNA lets you capture records as you go, so the receipts, fees, and rental figures are already in one place when you come to sell.

Here’s what you can do with ANNA’s help:

• Prepare for Making Tax Digital: ANNA's MTD for Landlords service helps eligible landlords keep digital records and submit quarterly updates to HMRC
• Stay on top of your bookkeeping: Auto Accountant automatically categorises your transactions, helping you maintain accurate financial records
• Store receipts digitally: You can upload receipts and invoices for property improvements, legal fees, and other allowable costs, so they’re easy to find later
• Track your tax position: Real-time tax estimates help you understand what you may owe and avoid unexpected tax bills
• Manage your business finances in one place: With ANNA’s business account, you can send invoices, receive payments, and keep your business income separate
• Never miss an important deadline: Smart reminders help you stay on top of tax filing and payment dates throughout the year
• Get support whenever you need it: Even if you have tax questions late at night, ANNA’s professional support team will be there to help

Sign up for ANNA today to keep your property records organised come tax time.