What happens if I sell a second home or buy to let property?

This guide explains what happens when you sell a second home or buy to let property including Capital Gains Tax rules, 60 day reporting deadlines, spousal transfers and allowable costs.

Selling a second home or a buy to let property is very different from selling your main residence. The UK tax system treats investment properties and second homes as chargeable assets which means they fall under Capital Gains Tax rules. In my opinion this is one of the areas where people are caught off guard because they assume the tax works the same way as selling their own home. It does not. You must report the sale quickly, pay any tax due within a strict deadline and calculate your gain carefully to avoid penalties.

This guide explains exactly what happens when you sell a second home or rental property. I walk through Capital Gains Tax rules, allowable costs, the 60 day reporting requirement, how to calculate the gain, how private residence relief works, what happens if you ever lived in the property, how to reduce your tax bill legally, and how to avoid the common mistakes that cost people money every year.

First: second homes and buy to lets do not qualify for full Private Residence Relief

If the property you are selling is not your main home you cannot claim full Private Residence Relief.

This includes:

  • Holiday homes

  • Second homes

  • Buy to let or rental properties

  • Properties you inherited but did not live in

  • Homes you previously lived in but have since rented out

Your main home is almost always exempt from Capital Gains Tax. A second home is not.

In my opinion this is the most important starting point because it shapes everything that follows.

What tax do I pay when selling a second home or buy to let?

When you sell a second home or rental property you may need to pay Capital Gains Tax (CGT) on the profit you make.

The CGT rates for residential property are:

  • 18 percent for gains within the basic rate band

  • 28 percent for gains in the higher or additional rate band

These rates are higher than the rates for shares and other assets.

Your CGT position depends on:

  • The size of your gain

  • Your income for the tax year

  • Whether you have losses to offset

  • Whether you qualify for partial relief

How to calculate the gain when selling a second home

CGT is not based on the sale price. It is based on the gain you make.

Gain = Sale price minus purchase price minus allowable costs minus reliefs

You need the following information:

1. Sale price

The amount you received.

2. Purchase price

The amount you originally paid.

3. Allowable costs

These reduce your gain and can save you thousands in tax. They include:

  • Stamp duty paid on purchase

  • Legal fees

  • Estate agent fees

  • Survey fees

  • Capital improvements such as extensions, new kitchens or structural upgrades

  • Costs of acquiring or disposing of the property

You cannot deduct:

  • Normal repairs

  • Decoration

  • Mortgage interest

  • Maintenance costs

In my opinion many people miss out on legitimate deductions because they do not keep receipts or misunderstand what counts as an improvement.

Example of a CGT calculation for a rental property

Bought for £180,000
Stamp duty and legal fees: £4,000
Capital improvements: £10,000
Sold for £300,000
Estate agent and legal fees: £5,000

Calculation:

Sale proceeds: £300,000
Purchase costs: £180,000
Allowable costs: £19,000
Gain: £101,000

You then deduct your annual CGT allowance and apply the correct rates depending on your income.

You must report the sale to HMRC within 60 days

This rule catches thousands of people out every year.

If you sell a UK residential investment property you must:

  1. Submit a Capital Gains Tax on UK Property return within 60 days

  2. Pay the estimated tax due within the same 60 day window

This rule applies even if:

  • You already submit Self Assessment

  • You plan to include the sale in your tax return later

Failing to report within 60 days leads to penalties and interest.

Penalties can include:

  • Fixed late filing penalties

  • Daily penalties if significantly late

  • Interest on unpaid tax

In my opinion this is the single most important rule landlords and second home owners need to know.

What if the property was once your main residence?

If you previously lived in the property as your main home you may qualify for partial Private Residence Relief.

HMRC will not tax the gain for the period you lived there.

You also receive:

  • The final 9 months of ownership completely tax free

This applies even if the property was rented out after you moved.

Example

You owned a property for 10 years.
You lived in it for 4 years then rented it out for 6 years.
You only pay CGT on the portion relating to the 6 rental years minus the final 9 months.

In my opinion this partial relief can reduce your tax bill significantly so it is always worth calculating.

Lettings relief (reduced version)

Lettings relief used to be very generous but the rules changed.

You can now only claim lettings relief if:

  • You lived in the property at the same time your tenants lived there

This applies to live-in landlords only. For standard buy to lets lettings relief is no longer available.

Does my spouse have an allowance I can use?

Yes. Married couples and civil partners can transfer property between them tax free using the no gain no loss rule.

This allows you to:

  • Split the gain

  • Use two CGT allowances

  • Potentially have some of the gain taxed at basic rate instead of higher rate

This can save thousands.

In my opinion anyone selling a second home or rental property should at least consider a spousal transfer before selling.

Reporting losses

If you have losses from other assets you can offset them against your gain.

Losses must be:

  • Realised losses

  • Reported to HMRC

You can carry losses forward indefinitely.

Example

You have a £20,000 property gain and £8,000 share losses.
Your taxable gain becomes £12,000.

What if I inherited the property?

If you inherit a property:

  • You do not pay CGT at inheritance

  • Your acquisition price becomes the probate value

When you later sell it you pay CGT on the increase from the probate value to the sale price.

Inheritance Tax is separate and has no impact on CGT.

What if I jointly own the property?

Joint owners each calculate their share of the gain separately.

For example:

  • A 50/50 couple with a £40,000 gain each report £20,000

  • Each use their own £3,000 CGT allowance

  • Each pay CGT based on their income

This can be tax efficient when one owner earns less.

Capital Gains Tax rates in more detail

Your CGT rate depends on your income.

Step 1: Add the gain to your income

If the combined total stays within the basic rate band, the property gain is taxed at 18 percent.

If it exceeds the basic rate band, the portion above is taxed at 28 percent.

Example

Income: £40,000
Gain: £20,000
Basic rate band ceiling: £50,270

Portion taxed at 18 percent: £10,270
Portion taxed at 28 percent: £9,730

This blended rate calculation can be complicated, but HMRC’s system does it automatically.

What happens if I sell at a loss?

If you suffer a loss when selling your second home or buy to let:

  • You can use the loss to offset gains from other assets

  • You must report the loss to HMRC to use it later

  • You cannot carry the loss back, only forward

Losses do not create a tax refund unless you have gains to offset.

How refurbishments affect CGT

Only capital improvements reduce your gain.

These must improve the value of the property such as:

  • Extensions

  • Loft conversions

  • New kitchens or bathrooms if part of a larger improvement

  • Structural work

  • Electrical rewiring

  • New heating systems

They must be improvements, not repairs.

Not allowable:

  • Painting

  • Decorating

  • Repairing leaks

  • Replacing worn carpets

In my opinion many landlords claim repairs as improvements and then face HMRC queries.

What happens if I sell multiple properties in one year?

You must:

  • Calculate each gain

  • Deduct your £3,000 allowance once

  • Combine gains

  • Offset losses

  • Report each disposal

You must still complete a 60 day return for each residential property sold.

Timeline of what happens when you sell a second home

Step 1: Exchange contracts

This fixes the disposal date for CGT purposes.

Step 2: Completion

This triggers the 60 day reporting deadline.

Step 3: Calculate the gain

Include all allowable costs and improvements.

Step 4: Submit a CGT on property return within 60 days

Pay the estimated CGT.

Step 5: Submit Self Assessment after the year ends

Report the final gain and tax paid earlier.
HMRC will reconcile any underpayment or provide a refund if you overpaid.

In my opinion many people do not realise the CGT must be paid long before the Self Assessment deadline.

Real world examples

Example 1: Standard buy to let sale

Josh sells his rental property for a £55,000 gain. He must report and pay CGT within 60 days. He pays at 28 percent on most of the gain because he is a higher rate taxpayer.

Example 2: Using spousal allowance

Emily owns a second home alone. Before selling she transfers half to her husband Tom who is a basic rate taxpayer. They each use their CGT allowances and Tom pays 18 percent instead of 28 percent on his share. They save thousands.

Example 3: Property once used as main residence

Ben rented out his old home after moving. When he sells it he gets full relief for years he lived there plus the final 9 months. Only the rental period is taxable.

Example 4: Large improvements

Lydia spent £25,000 replacing a kitchen, rewiring the property and building an extension. All of these qualify as capital improvements and reduce her gain significantly.

In my opinion: key things to remember

If I had to summarise this topic simply I would say:

  1. Second homes and buy to lets do not qualify for full Private Residence Relief.

  2. You usually must pay CGT on the gain.

  3. You must report and pay within 60 days.

  4. Allowable costs and improvements can save you a lot of tax.

  5. Spousal transfers can reduce the tax bill legally.

  6. If you ever lived in the property you may get partial relief.

  7. Your CGT rate depends on your income and the gain.

  8. You must still include the sale in Self Assessment even after filing the 60 day return.

In my opinion selling a second home is one of the most tax sensitive events in personal finance, and planning ahead makes a huge difference.

Final thoughts

Selling a second home or buy to let property triggers very different tax rules from selling your main residence. You may need to pay Capital Gains Tax, report the sale within 60 days and calculate your gain carefully. With the right planning you can reduce the tax significantly through allowable costs, spousal transfers, loss relief, and partial Private Residence Relief if you used the property as your main home at any point.

In my opinion understanding the rules before you sell is essential. The earlier you plan the more tax you can save.