A cottage in Cornwall or a condo on Cape Cod: what a second home costs in tax

Figures relate to tax year 2025 (US) · 2025-26 (UK)

You buy a cottage near Padstow for family holidays, or a condo on Cape Cod for the summers. Either way the second home sits in one country while you live in the other, and both tax systems take an interest in it.

The surprises rarely come at purchase. They come at sale, and in the annual charges nobody mentioned. So this guide covers what each country charges, where the reliefs stop, and what to plan before you sign anything.

Key takeaways

• Buying in Britain brings a stamp duty surcharge on an additional property.
• Councils can charge a premium on second homes left empty for much of the year.
• America taxes the gain on any sale, and the main home exemption rarely applies.
• Britain charges capital gains tax on UK property whether or not you live here.
• Currency movement forms part of the American gain, even without a price rise.
• Estate tax and inheritance tax both follow the property's location.

What is a second home for tax purposes?

Any residential property that is not your main home. It covers holiday cottages, flats kept for work, and places bought for family to use. Neither country asks whether you rent it out, though letting changes the treatment considerably.

Which property counts as your main home is a question of fact in both systems. Britain allows an election between residences in some cases, while America looks at where you actually lived.

What does it cost to buy?

In Britain, stamp duty land tax applies with a surcharge on additional properties, and a further surcharge for non-residents. Those charges sit on top of the standard rates, so the purchase cost rises sharply for anyone buying a second home from abroad.

In America, purchase taxes are lighter but local. Transfer taxes vary by state and county, and annual property taxes are usually far higher than British council tax. Budget for the running cost rather than the entry cost.

The annual charges people forget

British councils can charge a premium on homes left substantially empty, and many now do. A cottage used for a few weeks a year can attract a much larger council tax bill than the main residence next door.

American property taxes work differently and are often the dominant cost. Rates vary by town, and a condo on the coast can carry a bill that dwarfs anything familiar from Britain.

Insurance follows the same pattern. Unoccupied property costs more to insure in both countries, and coastal exposure adds more again.

Does a mortgage change anything?

It changes the cash position and, in America, sometimes the tax. Interest on a second home can be deductible in America within limits, while Britain gives no relief for a property you do not let. So the same loan produces different answers on each return.

Borrowing in the local currency is usually simpler. A sterling loan on a British cottage avoids one exchange risk while creating an American currency question on repayment.

Lenders add their own friction. Many British lenders will not lend to a borrower living abroad, and American lenders rarely lend on foreign property at all.

Who should own it?

Usually the individuals, for a straightforward holiday home. Companies bring annual charges on British residential property and awkward American reporting. Trusts can help with succession but add cost and complexity that a modest second home rarely justifies.

Joint ownership needs thought where one spouse is not American. The share each person owns decides who reports what, and it can matter a great deal on death.

What happens when you sell?

Both countries look at the gain, and the reliefs are narrower than for a main home. According to GOV.UK guidance, Britain charges capital gains tax on UK property for owners wherever they live, with a reporting deadline shortly after completion. America taxes the gain as well, then gives credit for the British tax.

The main home exemption rarely helps. Per IRS guidance on selling a home, the exclusion needs the property to have been your principal residence for two of the last five years, which a holiday home never satisfies.

Our guide to selling a UK home as a US citizen covers the main residence case, where the rules are kinder.

Why currency changes the answer

America measures the gain in dollars, using the rate on the purchase date and the rate on the sale date. So a cottage sold for exactly what it cost in pounds can still produce a taxable dollar gain if sterling strengthened in between.

The reverse is also true, and just as unwelcome. A profit in pounds can shrink in dollars, leaving British tax with no American tax to credit against.

A sterling mortgage adds a further layer. Repaying it can produce a separate currency gain in American eyes, which our guide to exchange rates on a US return explains.

A worked example

The figures below are illustrative. Take an example: an American couple living in London buy a Cornwall cottage for £400,000 in 2019 and sell it for £520,000 in 2025.

Britain charges capital gains tax on the £120,000 gain, with the annual exemption and costs deducted first. The report and payment fall due shortly after completion, not at the end of the tax year.

America then measures the same sale in dollars. If sterling rose over the period, the dollar gain exceeds the sterling one, and the credit for British tax may not cover the whole American charge.

What if you let it out?

Then it becomes a rental property in both systems, with different rules on each side. Britain taxes the profit under its property rules, while America requires depreciation whether or not you claim it. That depreciation reduces your basis and increases the eventual gain.

Furnished holiday letting rules in Britain changed recently, so older planning may no longer apply. Our guide to UK holiday lets and US tax covers the letting position in detail.

Death and the second home

Location decides which system charges on death. British property falls inside inheritance tax whoever owns it, and American property falls inside estate tax the same way. So a couple with homes in both countries can face both systems on the same estate.

The estate and gift tax treaty allocates the charge and gives credits, which usually prevents genuine double taxation. It needs a claim and proper valuations, and it rewards planning done in advance.

Ownership structure matters as much as location. Joint ownership, a company or a trust each produce different answers, and the British answer rarely matches the American one.

What records should you keep from day one?

Everything that touches the cost. The completion statement, the stamp duty return, legal fees, survey costs and every improvement invoice. Both countries let you deduct qualifying costs from the eventual gain, and both expect evidence rather than estimates.

Improvements matter most. A new kitchen, an extension or a rewire can reduce the gain years later, but only if the paperwork survives the decade in between.

Keep the currency detail too. Record the exchange rate on the purchase date, because the American calculation needs it when you eventually sell.

How to plan a purchase

The useful work happens before completion, when structure and timing are still open. Afterwards the options narrow quickly, and unwinding a structure costs more than setting it up.

1. Work out the full purchase cost, including surcharges for additional and non-resident buyers.
2. Check the annual charges, including any council premium or local property tax.
3. Decide whether the property will ever be let, because that changes both returns.
4. Model the eventual sale in both currencies, not just in the local one.
5. Check the death position and whether the treaty relief would apply.
6. Choose the ownership structure before exchange, with both systems in view.
7. Keep every cost document from the outset, because the eventual gain depends on them.

What if family use it rent free?

Letting relatives stay without charge is usually fine, and neither country taxes you on rent you never received. But it can affect whether the property counts as a rental for expense purposes, and heavy family use rules out most deductions.

Charging a below-market rent is the trickier case. America has specific rules for properties rented at less than market value, which limit the costs you can claim against the income.

Should you keep it when you move back?

That depends on what the property is for. A cottage kept for holidays stays a second home, with the same charges as before. A property you return to live in can change character, which may open reliefs that were never available while it sat empty.

The year of the move is the one to model. Residence changes on both sides, and the sale of either property in that year can land very differently depending on timing.

Is a holiday home ever worth owning through a company?

Rarely for personal use. British residential property held in a company can attract an annual charge, and using the property yourself creates a benefit in kind. America then adds its own reporting for the company, which costs more than most families expect.

Commercial letting portfolios are a different question. There the company can make sense, and the analysis belongs with the wider business rather than with a family holiday home.

Mistakes and penalties we see with second homes

• Missing the British 60-day reporting deadline after selling UK property.
• Assuming the main home exemption covers a holiday property.
• Forgetting that America measures the gain in dollars, not pounds.
• Overlooking required depreciation on a property that was let for a period.
• Buying through a company for British reasons without checking the American consequences.
• Losing the paperwork for improvements, which would have reduced the gain.

Late reporting after a British sale brings penalties quickly, and interest runs on the tax. On the American side, an understated gain carries accuracy penalties and interest from the original due date.

How US UK Tax Accountants helps

We model the purchase, the holding period and the sale in both systems before you commit. Where a property is already owned, we plan the exit and handle both filings when it sells. If you own or are buying a second home across the Atlantic, get in touch and we will map the position alongside our treaty relief work.

Last reviewed 23 September 2026. This article is general information and not personal tax advice. Surcharges, premiums and reliefs change often, so confirm the current rules before you buy or sell.