Capital Gains Tax (CGT) is payable whenever you sell or dispose of (lease, exchange or give away) property in the UK other than your principal home. However, if a property was acquired before 31st March 1982, no capital gains tax is usually payable.
When you sell a second home acquired after 31st March 1982 and make a gain that's above your annual CGT allowance (£8,500 in 2005/2006) you're liable for CGT. This is payable at your highest rate of income tax (between 10% and 40%), although you can deduct expenses incurred during the purchase and sale (including legal fees and mortgage arrangement costs), plus the cost of improvements and maintenance during the period of ownership.
If you're married, you can share ownership with your spouse and you both qualify for the annual CGT allowance. If you pay tax at the higher rate and your spouse is a basic rate taxpayer, it would make sense for them to own the property.
If you have two or more homes in the UK, living part of the year in one and part in another, you can nominate which property is your principal residence for CGT purposes, but you must live in it some of the time. It's best to choose the one on which you think you will make the largest profit as your main home. You must inform HM Revenue and Customs of your choice of principal home within two years of buying a second home, otherwise they may decide which property is your main home. However, you can change your mind at any time afterwards.
For more information, see the HM Revenue and Customs website http://www.hmrc.gov.uk or contact your local tax office for advice on your particular circumstances.
