Capital Gains Tax on Second Home & Buy-to-Let UK 2025/26

Quick answer

When you sell a UK residential property that isn't your main home, you pay Capital Gains Tax on the gain. For 2025/26:

The £3,000 annual exemption applies before tax. The gain stacks on top of your other income to determine which slice it falls into.

Two critical procedural rules:

1. 60-day reporting: for UK residential property, report and pay via gov.uk within 60 days of completion.
2. Annual Self Assessment: the disposal also goes on your SA return for the year.

What's "the gain"

The taxable gain = sale proceeds minus all allowable costs:

Allowable costs include:

• Original purchase price + SDLT/LBTT/LTT paid at purchase.
• Legal fees at purchase and sale.
• Survey costs at purchase.
• Estate agent fees on sale.
• Capital improvements (extensions, new kitchens/bathrooms — major works that lasted, not repairs).
• Cost of professional advice (RICS surveyor for valuation evidence, accountant fees specifically for the disposal).

NOT allowable:

• Routine repairs and maintenance (these are revenue expenses, deductible against rental income year by year).
• Mortgage interest (already deducted from rental income).
• Period costs (council tax, utilities during void periods).

Worked example — Lisa's BTL flat

Lisa bought a 1-bed flat in Manchester for £180,000 in 2014. She sells in October 2025 for £290,000.

Costs to be added to base cost:

• Purchase: £180,000.
• SDLT: £1,100 (pre-October 2024 standard rates).
• Legal at purchase: £1,500.
• New bathroom 2018 (capital improvement): £6,500.
• Kitchen refit 2020 (capital): £8,500.
• Total acquisition cost: £197,600.

Disposal proceeds:

• Sale: £290,000.
• Less estate agent (1.5%): -£4,350.
• Less legal: -£1,400.
• Net proceeds: £284,250.

Gain: £284,250 - £197,600 = £86,650.

Annual exemption: -£3,000.

Taxable gain: £83,650.

Lisa earns £55,000 from PAYE. Her basic-rate band is fully used. The entire £83,650 falls in the higher-rate band:

• £83,650 × 24% = £20,076 CGT.

She must report and pay this within 60 days of completion.

The 60-day reporting rule

Since 27 October 2021, any UK residential property disposal generating a CGT liability must be reported via HMRC's online Capital Gains Tax service within 60 days.

Process:

1. Completion happens (the day money changes hands and keys transfer).
2. Within 60 days, you must:
   • Calculate the CGT due.
   • Log in to gov.uk/report-and-pay-your-capital-gains-tax-on-uk-property (separate Government Gateway service from Self Assessment).
   • Submit the figures.
   • Pay the tax due as an interim payment.
3. The same disposal also appears on your annual Self Assessment for the year.
4. SA reconciles any difference — typically refund if over-paid, or balancing payment if under.

Penalties for late 60-day reporting:

• 1 day late: £100 fixed.
• 3 months late: £10/day for up to 90 days.
• 6 months late: 5% of tax owed (minimum £300).
• 12 months late: another 5%/£300.

Plus interest at 7.5% on unpaid tax.

Spousal transfer trick

Transfers between spouses or civil partners are no-gain-no-loss for CGT — the recipient inherits your cost basis.

Worked example — Lisa transfers half to her spouse

Pre-sale, Lisa transfers a 50% beneficial interest in her flat to her partner Tom (who's a basic-rate taxpayer).

On sale:

• Lisa's gain: £41,825 (50% of £83,650).
• Tom's gain: £41,825 (50% of £83,650).

Lisa's tax:

• Less £3,000 exemption: £38,825.
• At 24% (higher-rate): £9,318.

Tom's tax:

• Less £3,000 exemption: £38,825.
• Tom's basic-rate band has roughly £20,000 of room.
• £20,000 × 18% = £3,600.
• £18,825 × 24% = £4,518.
• Total: £8,118.

Combined CGT: £17,436 — versus Lisa solo at £20,076.

Saving from spousal split: £2,640. Plus they used both £3,000 exemptions (£6,000 free) instead of one.

This transfer must be done before the sale completes, and must be properly documented (deed of trust). Doing it in the last week before completion is technically valid but creates HMRC scrutiny risk.

Private Residence Relief (PRR) — the main-home advantage

If a property was ever your main residence, you may qualify for partial PRR on the time it was your main home:

• Periods of actual occupation as main home: PRR.
• Final 9 months of ownership: always PRR (was 18 months pre-April 2020).
• Periods working abroad with intent to return: deemed occupation.
• Periods up to 4 years while working elsewhere in the UK: deemed.
• Up to 3 years for other reasons: deemed (if both sides of absence were main home periods).

Example — moved out, became BTL

Sarah bought a flat in 2010 (lived there); moved to a new home in 2018, kept the flat as BTL; sold in 2025.

• Ownership 2010-2025: 15 years total.
• Occupation as main home: 2010-2018 = 8 years.
• Last 9 months: always deemed = 0.75 years.
• PRR qualifying period: 8.75 years.
• Total ownership: 15 years.
• PRR percentage: 8.75 / 15 = 58.3%.

If her gain is £100,000:

• PRR-exempt portion: £100,000 × 58.3% = £58,300.
• Taxable gain: £41,700.
• Less £3,000 exemption: £38,700.
• At higher rate 24%: £9,288 CGT.

If she'd never lived there, the full £100,000 would have been taxable.

Letting Relief — mostly gone

Letting Relief used to be a generous additional allowance for properties that were once your main home and later let out. Since 6 April 2020, it only applies if you share occupation with the tenant — effectively only lodger arrangements.

For typical BTL conversions (you moved out, tenant moved in), Letting Relief no longer applies.

What about company-owned property?

Companies don't pay Capital Gains Tax — they pay Corporation Tax on chargeable gains (currently 19% or 25%).

For incorporation of personal BTL holdings:

• Transfer triggers CGT on the personal owner (at market value).
• And triggers SDLT for the company (with the 5% ADS).
• Together, 10-20% of property value in transfer taxes.

This is why incorporating an existing personal-name BTL portfolio is rarely worth it for tax — only for new acquisitions.

How CGT stacks with income

Your gain is added on top of your taxable income to determine which rate band applies:

Example — Mike with £40,000 income + £20,000 property gain

• Income £40,000 uses £27,430 of basic-rate band.
• Remaining basic-rate room: £50,270 - £40,000 = £10,270.
• £3,000 exemption used on gain.
• Remaining gain £17,000:
  • £10,270 in basic-rate band slice × 18% = £1,849.
  • £6,730 in higher-rate band slice × 24% = £1,615.
• Total CGT: £3,464.

Higher-income earners pay more of their gain at the 24% rate. Lower-income earners benefit from the 18% basic-rate slice.

Common mistakes

1. Forgetting capital improvements — kitchens, extensions, conservatories add to your base cost. Keep receipts for the entire ownership.
2. Missing the 60-day reporting — biggest source of avoidable penalties.
3. Forgetting Private Residence Relief if you lived there briefly.
4. Not using spousal transfer to double the £3,000 exemption.
5. Confusing capital with revenue costs — repairs are deductible against rent (income tax); improvements add to cost base (CGT).
6. Selling at a loss without registering — capital losses must be claimed on Self Assessment within 4 years.

Worked example — Tom's main-residence-turned-BTL with PRR + spousal split

Tom bought a 2-bed flat in 2012 for £150,000 (lived in it). In 2018 he moved abroad for work for 3 years. In 2021 he returned to London but moved to a bigger flat with his partner Jane — old flat became BTL.

He plans to sell in 2026 for £320,000. He and Jane decide to transfer 50% beneficial interest to Jane (basic-rate) pre-sale.

Ownership periods:

• 2012-2018: main home (6 years).
• 2018-2021: abroad (3 years, deemed occupation — work abroad).
• 2021-2026: BTL (5 years).
• Last 9 months: always deemed (0.75 years).

PRR qualifying period: 6 + 3 + 0.75 = 9.75 years. Total ownership: 14 years. PRR percentage: 9.75 / 14 = 69.6%.

Costs:

• Purchase + acquisition costs: £155,000.
• Capital improvements: £15,000.
• Total base cost: £170,000.

Sale:

• Proceeds £320,000 - selling costs £6,400 = £313,600.
• Gross gain: £143,600.
• PRR exempt: £143,600 × 69.6% = £100,006.
• Taxable gain: £43,594.

After 50/50 split to Jane:

• Tom: £21,797 less £3,000 exemption = £18,797 taxable.
• Tom's income £75k (higher-rate): £18,797 × 24% = £4,511.
• Jane: £21,797 less £3,000 = £18,797 taxable.
• Jane's income £30k (basic-rate, room ~£20k): all in basic-rate band × 18% = £3,383.

Combined CGT: £7,894 — versus Tom solo at ~£10,000+.

Plus the 9-month deemed period saved roughly £7,000 more by extending the PRR qualifying period.

Try the numbers

Sources

• HMRC: Capital Gains Tax on residential property
• HMRC: Report and pay your CGT on UK property
• HMRC: Private Residence Relief
• HMRC: Spousal transfers and CGT