How to Avoid Capital Gains Tax on A Second Property In the UK 2024

In the tax year 2023-24, UK taxpayers need to be mindful of the changing landscape regarding the capital gains tax on second property.

If you have just sold, or are about to sell your second home at a tidy profit then now you need to do is pay the capital gains tax on it. If you own multiple properties you must be aware of the potential Capital gains tax liabilities. 

So, if you want to know more about avoiding capital gains tax on a second property, this article is for you.

Here, in this article, I am going to wrap together What is a capital gains tax on a second property, how much is a capital gains tax on a second property, and how to avoid capital gains tax on a second property.

staying up to date with the norms and rules including available reliefs may help mitigate your potential exposures. So, thus you can plan for your upcoming tax affairs!

What is a Capital gains Tax on a Second Property?

CGT is a tax on the profit that you make when you sell, or dispose of an asset, or a property that has increased in value. It is the gain that you make that’s taxed, not the amount you receive.

So, in simple words, I can say that a capital gains tax is a type of tax in which an individual releases a profit upon the sale or other transfer of an asset categorized as capital. 

Profit is the monetized amount left over after expenses have been deducted. So, capital gains tax is accessible when you gift, or sell a chargeable asset.

This is HMRC’s way of taxing the individuals on the profit they have made on selling a property. A capital gains tax includes the sale of shares, selling a second home, and business assets. 

How Much Is a Capital Gains Tax On Second Property?

The amount of capital gains tax on a second property will depend upon a few factors, including:

• How much profit you have made on selling the property that is your gains
• Whether you pay higher or basic tax rates
• The cost of selling and or improving the house before to sale
• Your capital Gains tax allowance (while writing this is 6,000 Pounds, but going down to 3,000 Pounds in April 2024.)

If you want to calculate how much you need to pay, at first you calculate the gains. subtract your capital gains tax allowance then multiply by your capital gains tax rates.

You just have a glance at these below two outlined:
Gain= Purchase Price -(sale Price +Buying and Selling Costs +Improvements Costs)
capital gains Tax payable=(gains-CGT Allowance)*CGT Tax rate

The annual allowances and tax band rates for the present year and the next tax year are provided below:

How to Avoid Capital Gains Tax On a Second Property

Capital gains tax is a tax on the gains that you have made on selling a property, shares, or some other investments. If you sell a second property in the UK you have to pay the CGT on the second property on the profits that you make. 

However, it can not be completely avoided but there are a few ways to reduce the amount of the payable tax on the sale of a second property. These include:

1. Annual Exemption

The annual exemption is a tax-free allowance that any taxpayer has for capital gains tax. For the tax year 2023/24, the annual exemption is 6,000 Pounds, which means the total gains that you have made in this tax year up to this amount are exempt from Capital gains tax. 

2. Private Residence Relief with more than one residence

here, I am going to focus on that point where an individual has more than one private resident to use as a home at any given time.

In such cases, if no action is taken, then the HMRC will decide which of the properties will be considered as the principal private residence for capital gains tax purposes. 

However, the property that you use more frequently as a residence will be considered as the principal residence.

Also, the taxpayer may designate one of the residences as a primary residence and a secondary residence for CGT. 

If a taxpayer wishes to do so then he/she needs to designate one of the residences as a principal residence within two years from the date on which they had two residences.

That means if a taxpayer owns two properties, one is their primary residence and another they have rented out. The primary residence will automatically become eligible for PRR, and no nomination will be possible. 

The taxpayer naturally designates the property as the primary residence with the highest capital gain. A taxpayer’s primary residence should not be where you spend most of the time.

3. Deduct Allowable costs

you can deduct certain costs from the taxable gains, which reduce the amount of capital gains tax you pay on your property. These including:

• Stamp Duty paid when purchasing the property
• Solicitors’ fees
• Estate agents’ fee
• certain other buying and selling costs such as surveyor
• costs for improvements to the property including kitchen extensions, any extensions, or more

You can not deduct costs for the maintenance of the property or mortgage interest. it is essential to keep all the records incurred to support your claim.

Moreover, if you lived in the property as the principal residence for the entire period of ownership, you can claim Private Residence Relief. 

You can also deduct various costs from the taxable gains to reduce the CGT that is due on pay. 

4. Letting Relief

While selling the second property, you can look at another area is the possibility of the letting relief.

Letting relief is available where part of a dwelling house is your main residence, and another part of the house is let out as residential accommodation. 

Since the tenant has the exclusive right to the property, private residence allowance will not be allowed on the part of the property but letting relief will be applicable.

Letting Relief is the following:

• capital gain attribute to the let-out part
• Private resident relief
• 40,000 Pounds

5. Transfer of Ownership

You can transfer the ownership of the property to a spouse or civil partner, who has a lower tax rate or can use their CGT allowance.

You must remember that the rules and regulations regarding CGT can be complex, and the tax implications can vary depending on your circumstances. 

FAQ

How Can I avoid capital gains tax on a second home UK?

Ans: There are certain ways to reduce the capital gains tax on a second home. These include:

• You can use the tax-free allowance for both you, your spouse, and your civil partner
• You need to keep records of all the costs associated with the sale since these will reduce the capital gains tax.
• Transfer of ownership
• Private residence relief if you have more than one residence

What is the Capital gains tax rate for the year 2024?

Ans: For the year 2023-24, the allowance will be 6,000 Pounds, which leaves 6,600 to pay tax on. The Capital gains tax rate for the basic rate taxpayers is 18 % for 2024 (on residential property).

How long do you have to keep a property to avoid Capital Gains Tax?

 Ans: You are only liable to pay CGT on a second property that is not the primary place of your residence. That means, your main home where you have lived for at least 2 years, will not come under the CGT category on selling the property. 

Conclusion

Well, if you are a property owner in the UK and planning to sell your second property, then you must be aware of the fact of Capital Gains tax on a second property.

I have discussed every aspect of Capital Gains tax in the UK in this article. So, if you are thinking of reducing or avoiding the Capital gains tax on selling your second home just go through my article.

There are certain ways to reduce the Capital gains tax, go forward with the one that perfectly suits your circumstances.