Capital gains tax bills soar for London’s second homeowners

London’s second homeowners face a Capital Gains Tax (CGT) bill of thousands of pounds, according to new research.

Over the past decade, rising property values have left many London investors facing significantly higher CGT bills when selling a second home.

However, the Prime London market has remained largely unscathed, and in some cases has even seen a decline in average CGT bills.

Redbridge the worst London borough to be a second homeowner

Across London, the average property investment would have cost £462,097 ten years ago, requiring stamp duty of £13,105 and legal fees of £2,399. A decade later, the same property has increased in value to £561,587, representing a gain of £99,490.

With an average agent fee of £9,547 and legal fees of £2,915 at the point of sale, total eligible deductions amount to £27,966. Including the additional £3,000 CGT allowance, total capital gains subject to taxation stand at £68,524.

For a lower-rate taxpayer, this equates to a CGT bill of £12,334, while a higher-rate taxpayer selling a second home in London today would face a charge of £16,446.

Residential property CGT currently applies at 18% within the basic-rate band and 24% above that.

The worst boroughs to be a second homeowner over the last decade, based on a 24% higher-rate capital gains tax liability, are: Redbridge (£31,381), Havering (£30,153), Bromley (£29,140), Bexley (£29,052), and Waltham Forest (£29,006).

Each of these areas has seen substantial house price growth since 2015, resulting in significant tax exposure for those exiting the market.

Capital gains tax has become an increasingly significant consideration for property investors

However, the report also reveals that second homeowners in prime central London have largely avoided CGT bills due to a decade of market stagnation.

In Kensington and Chelsea, the average home is now worth £75,546 less than it was ten years ago, meaning no capital gains tax is owed when selling a second home. The same applies to Westminster, Hammersmith and Fulham, and the City of London, where prices have all fallen since 2015.

Islay Robinson, CEO of Enness Global, says despite some London property investors facing high CGT bills others have escaped.

He said: “Capital gains tax has become an increasingly significant consideration for property investors, particularly following recent rate increases and the reduction of the annual exemption, and whilst the London market continues to deliver robust long-term returns in many areas, those gains now come with a heavier tax burden for second homeowners.

“At the same time, the reduction in values across many prime postcodes over the last decade has shielded many high-end second homeowners from capital gains liabilities. So, whilst they may be in the red with respect to the equity built on their investment, the silver lining is that they won’t be penalised for trying to off-load underperforming bricks and mortar assets in the current market climate.

“It’s a reminder that property investment returns are highly localised and that strategic planning, timing, and structuring are vital when managing or exiting a high-value asset.”