A second property, whether a holiday cottage or part of a rental portfolio, has traditionally been regarded as a valuable investment, providing both income and long-term capital growth. But in recent years, a combination of tax reforms and regulatory changes in the rental sector has made second and investment property ownership significantly less attractive.
The introduction of the additional 3% Stamp Duty Land Tax (SDLT) surcharge on second home purchases has deterred many would-be investors. Additionally, the higher rates of Council Tax imposed for properties used as second homes has increased the regular running costs of holiday homes. Meanwhile, restrictions on mortgage interest relief, changes to how landlords deduct expenses and reduced wear-and-tear allowances have eaten into profitability.
At the same time, the incoming reforms to tenants’ rights, including longer notice periods and the proposed abolition of Section 21 ‘no fault’ evictions, have made the private rental sector less flexible. Unsurprisingly, many landlords and second homeowners are now choosing to exit the market.
As a result, more landlords and second homeowners are choosing to sell up. But what many fail to realise is that selling a second home will trigger an often-sizeable CGT liability that must be reported and paid within 60 days of the sale completion.
What is capital gains tax?
CGT is payable when you sell an asset, such as property that is not your primary home, for more than you paid for it. The gain is the difference between your sale proceeds and the original purchase price, less any allowable costs, such as legal fees, estate agent fees and certain capital improvements.
Every individual has a CGT allowance of £3,000, with higher and additional rate taxpayers pay CGT at 24% on gains over that. Basic rate taxpayers may pay 18% or 24%, depending on the size of the gain and their income.
That reduced GCT allowance means that even modest gains can trigger a CGT liability, particularly for long-held properties that are likely to have risen in value.
A common mistake property sellers make is assuming they can report the sale on their self-assessment tax return at the end of the tax year. If you sell a UK residential property and CGT is due, you must:
- Report the gain to HMRC via the online UK Property Reporting Service within 60 days of the completion date (not the exchange date)
- Pay the CGT owed within 60 days of the completion date (or immediately on receipt on the CGT Tax Reference, if issued outside the 60 day period).
This rule applies to second homes, buy-to-lets and inherited properties if they don’t qualify for full main residence relief.
If that 60-day deadline for reporting the gain is missed, you will face a £100 late filing penalty and interest in the unpaid tax. Additional penalties will be incurred if paid more than six and 12 months late.
Other tax considerations
Aside from CGT, sellers of second homes should also be mindful of:
- Losses. Capital losses can be used to offset other gains.
- Spousal transfers. It may be possible to transfer a share of the property to a spouse or civil partner before the sale to make use of both parties’ CGT allowances and tax bands.
- Inheritance Tax planning. Disposing of property may form part of a broader estate planning strategy, especially where a second home was originally intended for future generations.
- Non-resident sellers. Special CGT rules apply to non-UK residents, who must report UK property sales even if no tax is due.
If you are planning to sell a second home or investment property, it is essential to seek professional advice at the earliest opportunity — ideally before contracts are exchanged. Your solicitor can help coordinate with your accountant to ensure the correct reporting obligations are met and any tax-saving opportunities are considered.
Contact our Private Client Solicitors
If you are in need of advice or assistance on any of the legal issues mentioned in this article, please contact Olivia Meekin, Partner or any member of our experienced Private Client team on 020 7631 4141 or email privateclient@bishopandsewell.co.uk in the first instance.
The above is accurate as at 23 June.
The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
