Guides
Multiple home owners In the UK, no one pays tax on the sale of a main home, because it is exempt from capital gains tax (CGT). If the value has increased since your purchase, the profit is tax-free. Owners of second properties, however, could face sizable tax demands if they sell to try and cash in on recent property price increases. But with the appropriate planning, a potentially high CGT bill could be reduced considerably. Over the past few years, the number of people buying multiple homes has increased, as more families purchase holiday homes or student accommodation for their offspring to live in while at university. Others have turned to the buy-to-let market to help plan for their retirement. Claim all allowable expenses Your taxable capital gain is the difference between what you buy and sell the property for. But you can add all professional estate agent’s and solicitor’s fees to the purchase price, plus stamp duty and the cost of any improvements. Make sure you keep receipts for all these items. Principal private residence Consider switching ‘principal private residence’ exemptions between properties. All gains on property are taxable with the exception of the home you live in, which HM Revenue & Customs (HMRC) calls your principal private residence. However, if you own more than one home you could elect which you wish to be classed as your primary residence, provided there is some evidence that you have actually resided there. If you live for even a matter of weeks at any stage in your ‘second’ home, this could enable you to write off the last three years of capital gains when you come to sell. You must elect which will be your primary residence within two years of the purchase of one of the various properties you own. Having made your choice, you could then change it. But if you fail to elect, the opportunity is lost. Writing off a gain Move in to reduce a gain It makes sense at some stage to live in a property you have bought to let out. Not only can you gain three years’ exemption, but you also get a further £40,000 allowance to offset against any gain. A husband and wife both receive this allowance, allowing them to write off a further £80,000 of the gain, provided they are joint owners. As with the election of a principal private residence, the length of time required to live there is not written in statute, although there is a general consensus that three to four months, or preferably six months, is required. Crystallise losses If, after these measures, you are still facing a potential tax bill, take a look at your other assets, not least your share portfolio, to see if you are sitting on any losses. If you sell these shares in the same tax year and crystallise the loss, this could be offset against the property gain. Deduct overseas taxes If you own a property abroad but are resident for UK tax purposes, you are liable for CGT in exactly the same way as if the property were here, but you could claim the same exemptions. You may, however, also find yourself liable for local property taxes. Where these have to be paid, it may be permitted to deduct them from the UK bill. Marriage can bring new challenges Tax bills can arise where the two people in a couple each has a property when they meet but decide to rent one out when they move in together. Until they marry, they can enjoy two lots of ‘principal primary residence’ exemptions. But once they marry, they have only one between them. They must then rely on the other exemptions listed above. However, it’s worth remembering that unmarried couples cannot transfer assets between each other free from inheritance tax and capital gains tax as married couples can. |
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