""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 offload underperforming bricks and mortar assets in the current market climate."
- Islay Robinson - Enness Global
Research from Enness Global shows that second homeowners in London could face substantial capital gains tax (CGT) bills when selling their properties, with the average investor now looking at a liability of up to £16,446 after a decade of ownership. By contrast, sellers in prime central London postcodes are largely avoiding CGT due to stagnant or declining property values.
Enness Global analysed the change in value of the average London property since 2015, subtracting the £3,000 CGT allowance and other deductible costs, such as stamp duty, legal fees, and estate agent fees. The firm then applied both 18% and 24% rates to reflect current basic and higher-rate taxpayer charges.
Across the city, the average second home would have cost £462,097 ten years ago, with a stamp duty bill of £13,105 and legal fees of £2,399. A decade later, the same property is valued at £561,587, representing a gain of £99,490. Agent fees of £9,547 and legal costs of £2,915 at sale bring total eligible deductions to £27,966.
With the £3,000 CGT allowance added, taxable gains stand at £68,524. For a lower-rate taxpayer, this equates to a £12,334 CGT bill, while a higher-rate taxpayer faces £16,446.
Outer London boroughs carry the highest CGT risk
The boroughs where second homeowners face the largest 24% CGT liabilities include Redbridge (£31,381), Havering (£30,153), Bromley (£29,140), Bexley (£29,052), and Waltham Forest (£29,006). Strong house price growth in these areas over the last decade has exposed investors to significant tax bills when exiting the market.
Prime central London sellers largely exempt
By contrast, second homeowners in prime central London have largely avoided CGT. In Kensington and Chelsea, the average property is now worth £75,546 less than it was ten years ago, while Westminster, Hammersmith and Fulham, and the City of London have also seen declines since 2015, leaving sellers without a tax liability.
Even boroughs with modest growth, such as Tower Hamlets, Islington, Wandsworth, and Southwark, have seen minimal appreciation, allowing long-term investors to remain effectively exempt from CGT once allowances and deductible costs are considered.
“Capital gains tax has become an increasingly significant consideration for property investors, particularly following recent rate increases and the reduction of the annual exemption,” said Islay Robinson, CEO of Enness Global. “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 offload 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.”
