K you are right, I think, to be concerned, and also to consider the judicious use of PPR to mitigate gains.
Simply put, the disposal of any property is subject to CGT; most people sell their main (only) home without realising that they are benefitting from Principal Private Residence Relief, (PPR), to relieve them from (normally) 100% of any gain that arises.
The situation becomes potentially more complicated when there is more than one property. Strictly, where there is more than one property available as a residence, and used as such. (i.e. if one buys a property and it is let throughout its period of ownership, there is no question of PPR being available to offset either part or whole of the gain arising on its disposal, as it has never been the owner's residence).
Where the owner has occupied a property as a residence, even if not as his or her main residence, then PPR may be in point. Generally, only one property can be the PPR at any one time. It is up to the owner to nominate one of the eligible properties as his or her main residence, effectively within two years of there being a choice of residences to nominate - note that another 2-year nomination period would commence if a third residence entered the equation, for example, so it might be best to think of it as being whenever there is a new combination of residences to consider, then the 2-year election window is in point.
The election time-line is so important because, if a valid election is made within the 2-year time limit, it allows later revisions to the election to be made, just as validly. If there is no valid election in the first place, then later revisions in respect of the same combination of properties are ignored, and the Inland Revenue will determine which property was the owner's main residence by reference to the facts, i.e. whichever was 'the most occupied.'
Why would it be better not to allow the Inland Revenue to determine which property was one's PPR? The answer is of course because of situations like yours:
You have recently acquired a second property, which you have occupied, presumably as a residence, albeit secondary to your main home. Prima facie, it could be nominated as your PPR for tax purposes. This is useful to you if you think that it is more likely that you will sell this second home before you sell your main home. (There could also be other reasons, such as the gain on the second home would be much higher than the gain on your main home, for instance, but it is often the property on which a gain is most likely to arise, which determines the most beneficial PPR election). The Inspector of Taxes, however, would look at the fact that you spent, say, no more than 20% of the time at your holiday home, and the balance at your first property, and find that your PPR was of course your first property, so if the question of determining your PPR is up to him because an election wasn't made, then the option to reduce a gain on the future disposal of the holiday home might be lost.
You must review your circumstances, and determine where lies the greater risk of occasioning a gain. It may be appropriate to consider making an election in any event, for the reason outlined in para. 5.
When calculating the gain arising on disposal, you may set against the net proceeds on dispoal the initial acquisition costs, together with the cost of any capital expenditure - normally improvements to the property. General repairs to a property, such as could be described as maintaining it in good order, are not allowable for CGT purposes.
You don't claim renovation costs in the year in which they are incurred: rather they are claimed at the time a Capital Gain arises. It is important to differentiate between 'revenue' items and 'capital' items.
If you let the property, then you will be assessable to Income Tax on the net income so derived, on an annual basis. It would be net of the REVENUE costs of letting the property. These might include morgage loan interest, agency fees, administrative costs and the costs of repairing the property so as to maintain it in good order. If your costs exceeded your lettings income, then you would claim those losses on an annual basis. You couldn't claim the CAPITAL costs incurred, (e.g. improvement expenditure - see above), even if incurred whilst the property was let, against the lettings income. The capital expenditure is rolled up to set against any net proceeds on disposal, as above. What I am getting at is, 'revenue' or income tax losses are claimed annually, whilst capital costs are ignored when incurred, and 'saved up' until the relevant property is sold, or otherwise occasions a chargable gain. So no, you don't have to claim anything annually, if you aren't letting the property.
The gain arising on the disposal of a property is deemed to have accrued over the period of its ownership. Therefore, if you own a property for 10 years, and it has been your PPR for 4 of those years, (by election, or by determination of the Inland Revenue), then 40% of the gain will be set aside. (PPR relief is applied to the gain net of acquisition and improvement costs incurred, but before Taper Relief (TR) and the Annual Capital Gains Exemption (AE)).
K, the above should give you an idea of the main points to consider. I have not touched on the more complex aspects of PPR relief, such as periods of deemed occupation, nor lettings relief, nor Indexation Allowance, which might apply to your current main home, nor to the potential benefits of transferring interests in the property to, or between spouses. There is also the strong possibility that you might at some point want to consider turning the property into furnished holiday accommodation, to avail yourself of the far more generous rates of Taper Relief applicable to "Business Assets."
I suggest that you speak to a suitably qualified professional, (before your 2 year time limit expires!) who can advise you in depth, having had the opportunity to review your circumstances in full. You can then determine the most appropriate election, and the basis on which it might periodically be reviewed.