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Selling a second home

If you’re lucky enough to own a second home, selling or disposing of it does not mean that you pocket all the profit you make when you sell it. You will incur capital gains tax. If you are a landlord with a buy to let property, or owner of any property-based business, this is also a tax you will have to pay.

What happens when you sell a second home?

If you have a second home, or a buy to let property, selling it is not as simple as if it was your main home. You will have to pay capital gains tax when you sell any property that is not your main residence.

The tax must be paid within 60 days of the sale. Failure to report the sale and pay the capital gains tax will incur a fine and interest charges.

The tax implications of selling a second home

Capital gains tax is charged on the profit that is made on the sale of a property. The ‘profit’ is calculated as the difference between the price you paid for the property and the price it is sold for, minus any expenses you incur, such as solicitors’ fees and estate agents fees’.

Basic rate taxpayers will pay 18% on property gains, while higher rate taxpayers contribute the higher rate of CGT at 28%. There is, however, an annual capital gains tax allowance, which in the 2022-23 tax year is £12,300 or £24,600 for couples.

If the property was your main residence or sole residence, capital gains tax is not applicable.

Private Residence Relief

Homeowners qualify for private residence relief when they sell their home, and do not have to pay tax on any capital gains. The only exceptions are the following:

  • If it has been let out (this does not include having a lodger)
  • Used a part of your home exclusively for business use
  • The grounds and buildings do not exceed 5,000 square metres
  • The property was not bought just for the purpose of making a financial gain

If the property has been let for a period in the past, but has otherwise been your main residence, private residence relief should still apply, and capital gains tax will only be charged for the time the property was let.

Second properties in joint names

By putting second homes into joint ownership, it may be possible to reduce the capital gains tax paid on the sale of the second home. For example, if a married couple jointly own a property that is not their main residence, the husband and wife may have different tax thresholds. If the husband is a higher band taxpayer, and his wife pays the basic rate, their combined capital gains tax bill will be lower than if the husband owned the property solely. Find out more about joint ownership. 

Selling buy to let properties

It is important to understand the tax implications of owning a buy to let property. The same capital gains tax rules apply to buy to let properties as second homes. You can still use a CGT personal allowance. The 60 day payment deadline still applies. 

Furnished holiday lets

When it comes to capital gains liability, furnished holiday lets are treated differently to second homes or buy to let properties. They are considered business assets, and qualify for Business Asset Disposal Relief. So if you are selling or disposing of a property which is a furnished holiday let, you will pay capital gains tax of 10%. To qualify for Business Asset Disposal Relief, you must be the business partner or sole trader, and you should have owned the business for at least two years.

Get a free valuation on your property

Whether it is your only home or a second home, if you want to know how much your property is worth, please get in touch with us and we will provide a free property valuation for you.