Capital Gains Tax on second property: tax rules when selling a second home in 2026/27

Capital Gains Tax on second property applies when you sell or dispose of a property that is not your main residence and it has increased in value. This commonly affects owners of second homes, buy-to-let properties, holiday homes, inherited properties and investment properties.

Unlike selling your main home, where Private Residence Relief may remove or reduce the tax liability, a second property will often create a Capital Gains Tax charge when sold. Understanding how the gain is calculated, which costs can be deducted and when HMRC reporting is required can help avoid unexpected tax bills.

For the 2026/27 tax year, individuals have a Capital Gains Tax Annual Exempt Amount of £3,000. Residential property gains are generally taxed at 18% for gains falling within the unused basic-rate Income Tax band and 24% for gains above that threshold. Which rate applies depends on your wider Income Tax position, explained fully in our ultimate guide to personal tax in the UK.

This guide explains how Second home Capital Gains Tax works, how to calculate the gain, available reliefs and what you need to consider when selling a second property.

When does Capital Gains Tax apply to a second property?

You may need to pay CGT when you dispose of a property that is not your main home and the sale creates a taxable gain.

This can include:

• A second home used for personal holidays.
• A buy-to-let property rented to tenants.
• A holiday let property.
• An inherited property that has increased in value after inheritance.
• Land or investment property.

CGT is charged on the gain made from the disposal rather than the total amount received from the sale. This same principle applies whenever you sell property more generally, whether it’s a second home, an inherited property or another type of investment.

For example, if you purchased a second home for £250,000 and later sell it for £400,000, the starting point for the calculation is the £150,000 increase in value before considering allowable costs, losses and exemptions.

How Capital Gains Tax on second property is calculated

The calculation for Tax when selling a second property is based on the difference between the purchase cost and the sale value.

The general calculation is:

Sale proceeds – original purchase cost – allowable expenses – qualifying improvements = taxable gain

After calculating the gain, you can consider:

• Available capital losses.
• The £3,000 Annual Exempt Amount for 2026/27.
• Any available Capital Gains Tax reliefs.

If the property was gifted or sold for less than market value, HMRC may require the calculation to be based on the property’s market value rather than the amount actually received.

Capital Gains Tax rates on second homes in 2026/27

The CGT rates for residential property depend on your taxable income position.

Your taxable gain is added to your taxable income for the year. This determines whether your gain falls within the basic-rate band or is charged at the higher CGT rate.

For example, someone with unused basic-rate Income Tax band may pay 18% on part of their gain and 24% on the remainder.

Allowable costs that reduce second property tax

When calculating Capital Gains Tax on second home sales, certain costs can reduce the taxable gain.

Allowable costs may include:

• The original purchase price.
• Stamp Duty Land Tax paid when buying the property.
• Solicitor and conveyancing fees.
• Estate agent fees when selling.
• Professional valuation costs.
• Qualifying capital improvement costs.

Capital improvements must generally add value or alter the property rather than simply maintain it.

Examples of qualifying improvements may include:

• Building an extension.
• Adding a new bathroom.
• Converting unused space into additional accommodation.
• Making structural improvements.

Routine repairs and maintenance costs, such as decorating or fixing damaged items, are normally not deducted from the capital gain.

Private Residence Relief and second properties

Private Residence Relief can remove CGT when selling your main home, but it does not normally apply to a property that has always been a second residence or investment property.

However, situations can become more complex where a property has been used as both a main home and a second property during ownership.

For example, if you previously lived in a property before moving elsewhere and keeping it as an investment, part of the gain may qualify for relief depending on the ownership history.

It is important to review how the property was occupied throughout ownership before assuming that relief is unavailable. A closer look at how selling your home can avoid Capital Gains Tax using PRR explains exactly how this partial relief is calculated for a property with mixed use.

Capital Gains Tax on buy-to-let and holiday properties

Buy-to-let properties are one of the most common situations where Capital Gains Tax on second property applies.

When selling a rental property, landlords should consider:

• The original purchase cost.
• Rental property improvements.
• Sale expenses.
• Available capital losses.
• The applicable CGT rate.

Holiday properties can also create CGT liabilities where they are not treated as the owner’s main residence.

Although furnished holiday let tax rules have changed, selling a holiday property may still create a CGT liability depending on ownership circumstances and available reliefs. Where a landlord previously shared occupation of the property with a tenant, it’s worth reviewing how PRR works alongside Lettings Relief, since this narrower relief may still apply.

Capital Gains Tax on inherited second properties

Inheriting a property does not usually create an immediate Capital Gains Tax charge for the beneficiary.

However, if the inherited property increases in value after the date of inheritance and is later sold, CGT may apply to that increase.

The calculation generally starts from the property’s market value at the date of inheritance rather than the amount originally paid by the deceased owner.

Keeping probate valuations and supporting documents is important when calculating the gain.

Joint ownership and second home Capital Gains Tax

Where a second property is jointly owned, each owner is normally responsible for reporting their share of the gain.

Each individual can usually use their own:

• Annual Exempt Amount.
• Available capital losses.
• Applicable tax bands.

The ownership structure should be reviewed before selling because changing ownership shortly before disposal may have tax and legal consequences.

Transfers between spouses and civil partners

Transfers of property between spouses and civil partners who are living together generally take place on a no-gain, no-loss basis.

This means the transfer does not usually create an immediate CGT charge, but the receiving spouse or civil partner generally inherits the original ownership history and base cost.

Planning ownership before a future disposal may allow couples to make better use of available allowances and tax positions, but advice should be taken before making changes.

The 60-day reporting deadline when selling a second property

If you sell a UK residential property and Capital Gains Tax is due, you must usually report and pay the tax within 60 days of completion.

This applies to many second property disposals, including:

• Second homes.
• Buy-to-let properties.
• Inherited residential properties.
• Holiday homes.

The UK Property CGT return must include details of:

• The purchase and sale values.
• Allowable costs.
• Capital improvements.
• Reliefs claimed.
• The estimated tax due.

This reporting requirement is separate from your annual Self Assessment tax return.

Common mistakes when selling a second property

Common errors involving Second property tax include:

• Assuming a second home sale is automatically tax-free.
• Forgetting allowable purchase and selling costs.
• Confusing repairs with capital improvements.
• Using outdated CGT rates or allowances.
• Missing the 60-day reporting deadline.
• Failing to keep evidence supporting deductions.

These mistakes can result in paying more tax than necessary or facing interest and penalties from HMRC.

Example: calculating Capital Gains Tax on a second property

David sells a second home for £500,000.

He originally purchased the property for £300,000 and has qualifying costs of £40,000, including improvement expenditure and sale expenses.

The calculation is:

• Sale proceeds: £500,000.
• Less purchase cost: £300,000.
• Less allowable costs: £40,000.
• Capital gain: £160,000.
• Less Annual Exempt Amount: £3,000.
• Taxable gain: £157,000.

The final CGT payable depends on David’s taxable income and whether the gain is charged at 18% or 24%.

Key takeaways

Capital Gains Tax on second property can create a significant liability when selling a second home, buy-to-let property or inherited property that has increased in value.

Understanding how the gain is calculated, which costs can be deducted and which reliefs may apply helps property owners plan effectively.

Where CGT is due on a UK residential property sale, meeting the 60-day reporting and payment deadline is essential to avoid penalties and interest.

Keeping accurate records and reviewing your position before selling can help ensure you pay the correct amount of Second home Capital Gains Tax while claiming all available reliefs.

Case Study: Reviewing Second Property Tax Before a Planned Sale

A property owner visited our Farringdon office before selling a second home that had increased significantly in value. They wanted to understand their potential Capital Gains Tax on second property liability, identify which costs could reduce the gain and confirm the reporting requirements before completing the sale.

During the review, we analysed the property’s purchase records, improvement costs, sale expenses and ownership history to prepare an accurate Second home Capital Gains Tax calculation. We explained which costs could be deducted, including qualifying capital improvements and disposal expenses, and helped separate eligible deductions from routine repairs that cannot normally reduce the taxable gain. We also reviewed the available Annual Exempt Amount, potential capital losses and the applicable 18% and 24% residential property CGT rates for 2026/27.

As a result, the client understood their likely Tax when selling a second property position before completing the transaction, had the correct records available to support their calculation and was prepared to meet HMRC’s 60-day reporting and payment deadline where tax was due.