UK Tax Questions? Ask a UK Tax Advisor for answers ASAP
If you do as you say in your question, the likelihood is that you will be treated as trading as a property developer by HMRC and any profit you make from the disposal of the property you don't intend to live in will be charged to income tax and class 4 national insurance contributions as opposed to capital gains tax. You might be able to avoid such treatment of the profit if you let the property for a year or so before selling it to demonstrate that you are a property investor as opposed to a property developer.
If you intend to live in the smaller property for the long term, you might consider living in the larger property for at least a year before selling it and then claiming exemption from CGT under the main residence rules which you can read about here:
HMRC may challenge your claim for exemption from CGT on the basis that it was your intention to live in the property for a short period to try to exempt the gain from CGT (or income tax and nic) as opposed to intending to make it your medium to long term home.
You can see the current income tax and nic rates here:
Capital Gains Tax is charged at 18% or 28% or a combination of the two rates depending on the level of the of the individual's income in the tax year a gain is made. The first £11,100 of gains made in the current tax year are exempt from CGT. Look here for information on how to work out your CGT rate:
I hope this helps but let me know if you have any further questions.
I'm just following up. Did my answer help or do you still have questions?