When clients ask what is second home tax, you must explain that there is no single “second home tax”. Instead, the UK government targets second homeowners across four distinct phases of ownership: a Stamp Duty Land Tax (SDLT) surcharge when buying, a potential Council Tax premium while holding, restricted tax reliefs if letting, and Capital Gains Tax (CGT) when selling.
For the 2026/27 tax year, recent legislative changes have significantly increased the tax burden on additional properties. You must navigate the new 5% SDLT surcharge, the abolition of the Furnished Holiday Lettings (FHL) regime, unified CGT rates, and new local authority powers to double council tax bills.
Purchasing: The 5% SDLT Surcharge (2026/27 Thresholds)
When you purchase an additional residential property in England or Northern Ireland (and you are not replacing your main residence), you must pay higher rates of SDLT.
The Finance Act 2025 permanently increased this surcharge from 3% to 5%. Furthermore, from 1 April 2025, the standard SDLT nil-rate band reverted to its permanent baseline of £125,000.
Consequently, section 51 of the Finance Act 2025 dictates the following SDLT bands for second homes in the 2026/27 tax year:
- Up to £125,000: 5%
- £125,001 to £250,000: 7%
- £250,001 to £925,000: 10%
- £925,001 to £1,500,000: 15%
- Above £1,500,000: 17%
In Schedule 4ZA to FA 2003 (higher rates of stamp duty land tax for additional dwellings etc), for the Table A in section 55(1B) mentioned in paragraph 1(2) substitute— “TABLE A: RESIDENTIAL… So much as does not exceed £125,000: 5%”.”
Corporate Purchases: If a company or other non-natural person purchases a second home worth more than £500,000 (and the property is not used for a commercial purpose), section 53 of the Finance Act 2025 imposes a flat rate of 17% on the entire transaction.
Owning: The 100% Council Tax Premium
While you own the property, you face significantly higher holding costs. The Levelling-up and Regeneration Act 2023 amended the 1992 Council Tax legislation, granting local councils the power to charge a premium of up to 100% on second homes.
From 1 April 2025 onwards, local authorities can apply this 100% premium to properties that are periodically occupied rather than serving as anyone’s sole or main residence. This effectively doubles the annual council tax liability for a second home.
Letting: The Abolition of the FHL Regime
Historically, many second homeowners let their properties as short-term holiday rentals to qualify for the advantageous Furnished Holiday Lettings (FHL) tax regime.
For the 2026/27 tax year, this route is closed. The government abolished the FHL regime entirely with effect from 6 April 2025.
“Broadly, the removal of sections 241 and 241A means that a FHL business is no longer treated as a trade from 6 April 2025… Rollover relief under sections 152 onwards will not be available where the replacement asset is acquired on or after 6 April 2025 for the purposes of a holiday lettings business as that activity is no longer treated as a trade.”
From 2026/27, you must treat income from a holiday home identically to standard residential property income. This means you can no longer claim Business Asset Disposal Relief, capital gains rollover relief, or deduct full mortgage interest payments against rental income.
Selling: Capital Gains Tax (CGT) at 18% or 24%
When you eventually sell the second home, you will owe Capital Gains Tax on the profit. Because it is a second home, you cannot claim Private Residence Relief (PRR).
Before applying the tax rates, you can deduct the Annual Exempt Amount, which is strictly capped at £3,000 for the 2026/27 tax year. You then apply the unified main rates of CGT set out in section 1H(3) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), as amended by section 7 of the Finance Act 2025:
- Basic Rate Taxpayers: You pay 18% on residential gains falling within your unused basic rate income tax band.
- Higher/Additional Rate Taxpayers: You pay 24% on any remaining gains that exceed the basic rate band.
- Trustees: Trustees disposing of a second home pay a flat rate of 24%.
Summary of Second Home Taxes (2026/27)
| Ownership Phase | Tax Element | 2026/27 Rule / Rate | Statutory Source |
|---|---|---|---|
| Buying | SDLT Surcharge | 5% surcharge (starts at £0, standard band £125k). | FA 2025, s 51 / FA 2003, Sch 4ZA |
| Buying (Company) | Corporate SDLT Rate | 17% flat rate on dwellings over £500,000. | FA 2025, s 53 / FA 2003, s 74(1A) |
| Owning | Council Tax Premium | Up to 100% premium (doubled tax bill). | Levelling-up and Regeneration Act 2023 |
| Letting | FHL Tax Reliefs | Abolished. Holiday lets treated as standard rentals. | HMRC Manual CG73505 |
| Selling | CGT Basic Rate | 18% on gains within the unused basic rate band. | FA 2025, s 7 / TCGA 1992, s 1H(3) |
| Selling | CGT Higher Rate | 24% on gains above the basic rate band. | FA 2025, s 7 / TCGA 1992, s 1H(3) |
Next steps for research: Review if the client is non-UK resident, as the separate 2% non-resident SDLT surcharge will apply on top of the 5% additional dwelling surcharge, resulting in a 7% entry rate for a second home purchase. Check the specific transitional rules for FHLs to determine if the client has capital allowance pools that can be carried forward into their standard UK property business.
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