I'm looking to sell my second home (holiday let) in Cornwall that I bought for £200k and it's now worth £350k. What expenses can I deduct from the capital gain to reduce my tax bill, e.g., stamp duty, solicitor fees, renovation costs, agent fees?

Quick Answer

You can deduct acquisition costs (SDLT, legal fees), disposal costs (agent fees, solicitor fees), and capital improvement costs from your sale price when calculating Capital Gains Tax on residential property.

## Tax-Deductible Expenses When Selling a UK Holiday Let When selling a second home or holiday let in the UK, several costs directly associated with the acquisition, enhancement, and disposal of the property can be deducted from the sale price to reduce your capital gain. For a property purchased at £200,000 and now valued at £350,000, understanding these deductions is important for calculating your Capital Gains Tax (CGT) liability at either 18% for basic rate taxpayers or 24% for higher/additional rate taxpayers, after utilising the £3,000 annual exempt amount. * **Acquisition Costs**: This category includes the initial **Stamp Duty Land Tax (SDLT)** paid upon purchase, legal fees (solicitors), and surveyor fees. For instance, the SDLT paid on a £200,000 property with a 5% additional dwelling surcharge would have been significant at purchase, and this entire amount is deductible. * **Disposal Costs**: Expenses directly related to the sale itself are deductible. This includes **estate agent fees**, solicitor fees for the conveyance, and any valuation fees for CGT purposes. Selling fees of 1-3% on a £350,000 property, like £7,000 in agent fees, are fully deductible. * **Capital Improvements**: Costs for works that genuinely enhance the property's value or extend its useful life are deductible. Examples include adding an extension, installing a new heating system, or a complete kitchen or bathroom renovation. Routine repairs and maintenance are not deductible for CGT purposes but can sometimes be set against rental income if it was a furnished holiday let. An investment of £30,000 in kitchen and bathroom upgrades would directly lower your taxable gain. ## Costs That Are Typically Not Deductible from Capital Gains While many costs reduce your taxable gain, some common expenses are not deductible for Capital Gains Tax purposes. Understanding these non-deductible items prevents miscalculations that could lead to HMRC penalties. * **Routine Repairs and Maintenance**: Day-to-day upkeep, such as decorating, fixing a broken window, or minor plumbing repairs, is generally not deductible from capital gains. These are considered revenue expenses. * **Interest on Loans**: Mortgage interest payments are not deductible against capital gains. Although Section 24 no longer allows individual landlords to deduct mortgage interest from rental income, it also isn't a cost that reduces CGT. * **Personal Expenses**: Any costs related to your personal use or enjoyment of the property, even if it was a holiday let, are not deductible. This includes travel expenses to inspect the property or time spent managing it. ## Steve's Rule of Thumb Always differentiate between revenue and capital expenditure; only true capital improvements and direct transactional costs for buying and selling legitimately reduce your Capital Gains Tax liability. ## What This Means For You Most investors realise the impact of CGT only when it's too late. Understanding these deductions can significantly affect your profitability when exiting a property. If you want to accurately assess your real return on investment (ROI) after all costs and taxes, this is exactly what we analyse inside Property Legacy Education.

Steven's Take

The reduction of the annual CGT exempt amount to £3,000 from April 2024 makes every eligible deduction even more valuable. For a second home or holiday let, it's important to have meticulous records of all capital expenditures. Many landlords overlook claiming for the initial Stamp Duty or smaller capital improvement works over the years. This can result in an unnecessarily higher CGT bill. Ensure your solicitor or accountant is clear on what qualifies as a capital expense.

What You Can Do Next

1. Gather all purchase documents: Locate your completion statements for the purchase of the Cornwall property. This will detail the exact Stamp Duty Land Tax paid, solicitor fees, and any other acquisition costs. These are essential for your CGT calculation.
2. Compile capital improvement records: Collate invoices and receipts for any extension, major renovations (e.g., new kitchen/bathroom costing £5,000+), or structural improvements made to the property since purchase. Ensure these are not routine maintenance records. If the property operated as a Furnished Holiday Let, distinguish between capital works and revenue expenses against rental income.
3. Obtain sale conveyance documents: Secure a breakdown of all selling costs, including estate agent fees (e.g., from your agent's invoice on a £350,000 sale, typically a percentage of the sale price like £7,000 for 2% + VAT) and solicitor fees associated with the disposal. These will be necessary for your CGT calculation, which must be reported via HMRC within 60 days of completion.
4. Consult a property tax specialist: Engage a qualified property tax accountant (find one via ICAEW.com or ACCA.org.uk) to review your expenditure. They can confirm which costs are deductible for CGT and help you calculate your accurate tax liability, ensuring compliance with HMRC regulations on residential property CGT.

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