Is this the best time to sell my second home?

With many people looking to cash in and realise the gain on the sale of their second home or investment property, Sam Stent, Associate Tax Partner looks at whether now is a good time to sell?

My daughter is currently buying her first home in Newcastle, and I have been amazed at the continued strength of the housing market, with dozens of people booking viewings and multiple offers being received by vendors after a property has been on the market for just a few days.

Numerous tax changes by successive governments have succeeded in making rental properties much less profitable and so undoubtedly, many of these sellers are private landlords who have decided to cash in and realise their gains. Other sellers might be selling a second home, or selling a second property that was only needed for a short period (e.g. for their children to live in whilst at university).

In each case, the sellers may end up with large gains and significant Capital Gains Tax (CGT) liabilities.

The current tax position

CGT remains payable at 18% for basic rate taxpayers (on any amount within their unused basic rate band).

However, for higher rate taxpayers, CGT on the sale of a residential property was reduced to 24% (down from 28%) from 6 April 2024 which may well have stimulated the property market.

In line with HMRC’s long term approach to ensure that any tax liabilities are paid to them as soon as possible, it is necessary to complete a separate CGT return (and pay any CGT due) within 60 days of sale.

So, what can you do to reduce CGT on second homes?

Does the property qualify for Private Residence Relief? (PPR)

CGT is not payable on a property which has always been used as your main residence.  Individuals who own more than one property and who use both as a main residence – living in a townhouse in the week and a country home at weekends for example – can opt to elect which property qualifies for PPR.  If the second property is a holiday home however, an election is not an option.

We are often asked if simply moving into your second home for a period of time can make it eligible for PPR and the CGT exemption. And my usual motto of “if it sounds too good to be true it probably is” applies here – sadly it’s not quite that simple!

PPR relief will only apply if you can demonstrate that you intended to occupy the property as your main residence on a continued and permanent basis and will only exempt the portion of the gain attributable to the period you actually lived there.

HMRC regularly investigate PPR claims, so it’s important to take professional advice if you’re unsure of your position.

Arguably you could of course sell your main residence and move into your second home instead if you’re looking to downsize or relocate, but that’s a topic for another day.

Is the property in joint names?

If the property is owned in your sole name, it can in some cases be beneficial to transfer part or all of the property to your spouse or civil partner. This can offer a saving where the spouse has not utilised their CGT annual exemption for the year, or if they are a basic rate taxpayer and pay the lower rate of CGT.

Whilst this can provide a CGT saving in some cases, there are several points to consider such as any Stamp Duty Land Tax that may arise on transfer (e.g. where there is a mortgage on the property), and whether the tax saving outweighs any legal costs of transferring the ownership.

Has the property been let as a Furnished Holiday Let (FHL)?

If you have let the property as a Furnished Holiday Let (FHL) in the 2 years before sale, the property may benefit from Business Asset Disposal relief (formerly Entrepreneur’s Relief), reducing the CGT rate to 10% on gains up to the lifetime allowance of £1 million.

However, from 6 April 2025, BADR relief will no longer be available on any disposals of FHL properties.  So, if you are thinking of selling your FHL, now is the time to do it!

Could you realise capital losses?

If you’ve any brought forward any capital losses which you’ve claimed in previous tax years, these can be offset against any property gains to reduce your CGT liability.

If you don’t have any brought forward capital losses, you could consider realising capital losses on other assets, such as investments, as any losses realised in the same tax year as the property gain can also be offset.

Have you renovated the property?

You can reduce your CGT liability by simply ensuring you claim all relevant expenses. These can include incidental costs in relation to the sale, Stamp Duty Land Tax and other costs you incurred when initially purchasing the property, as well any capital improvement costs. Relief is not available for general repair and maintenance costs, but it can be claimed for structural costs such as adding an extension, converting the loft or changing the layout of the property.

The deduction of capital expenditure is again an area HMRC look at regularly, and we would strongly recommend obtaining advice to ensure you are claiming the maximum amount you are entitled to.

Current rate of CGT

The Office of Tax Simplification was asked in 2019 to review the difference between Income and Capital Gains Tax rates.  The increases in CGT rates announced in the Autumn 2024 Budget (for non-residential property) have caused some speculation that there may be plans to gradually align the rates of CGT with income tax rates.

As things stand however, the current rate of CGT for residential properties remains lower than it has been for many years, and you may therefore choose to sell now to protect yourself against any future increase in the tax rate.

So, is this the best time to sell my second home?

In summary, there a number of financial factors to consider when deciding if and when to sell a second home. Inevitably the circumstances of the sale of each property will be different, so it is vitally important to take professional advice regarding your own position.

The tax team here at Scrutton Bland are well placed to advise on this matter, with a breadth of knowledge and experience in dealing with sale of second homes. Get in touch today by emailing hello@scruttonbland.co.uk or calling 0330 058 6559.