The second home tax trap
View PDF | Print View
by: admin
Total views: 104
Word Count: 758
With considerable rise in second homeownership, risk of investors investing in more than one property increases as they now face a tax rise.
This is another way to reduce liabilities for those who anticipate that all their efforts, time and finances in refurbishing their vacation rentals or buy to let homes will be appropriated by government taxes thus imposed.
However, for those fearing that the savings and hard work they have spent improving a holiday home or buy-to-let property will end up in Government's pocket, there is a way to limit liability.
The main residential home or the principal private residence has been exempted by the taxmen from any capital gains tax while it is sold off. However, any second property that anyone owns in addition to the primary residential property will be imposed with highest Capital gains tax when the owners try to sell it off.
An unmarried couple is eligible to own a home individually as their principal residence. However a married couple is only qualified to own a single home.
If you decide to live in the second property that you hold for some time then this might contribute to a slash in the capital gains tax bill.
If the second property has remained a residence for considerable time then the government exempts tax on the same residence for the period it has been a residential property plus 36 months of ownership. So when the home is rented out it might not attract any tax in such special cases.
A period of two years, after the purchase of the second home, is granted to the owner by the tax department to decide and announce which one they would like to keep as the main residence. During these two years the home might be vacant with no residents at all. After two years the owners will lose the right to nominate this property and to evade the CGT applicable on the same they need to prove that they were living in the second property
Many people lose this opportunity to nominate the second property within two years of purchase, the second property can only turn into principle residence if now they buy a third property.
Such a process involves transferring your postal and electoral details, bank etc. to prove that the second property has remained your private principle residence. You also need to rent out the first residence that you own. Moving into a new home always makes any other property liable to CGT for that period.
If you have rented out your main home then you are eligible for £40,000 letting. The claim you make should not be greater than £40,000 and must be lower of the specified sum of the amount claimed as letting relief or the CGT during the letting period.
For example, you are planning to sell off your property. You have purchased it 5 years back for £130,000. You have lived in it for a year and then moved in with your partner and have let your property out.
Now, if you plan to get married with your partner and sell your property at £230,000 to finance your move, then you get a CGT exemption for the first year as this was your main residence. You also get an exemption for next 36 months after one year. So now if the CGT is spread equally among these 5 years then the sum amounts to £20,000. This is lower than the £40,000 letting relief, so you will have to pay no tax at all.
Even if you are an owner of a buy-to–let property or previously rented vacation rental you are eligible for similar benefits. Provide you have moved into the property for six months you trigger an exemption for the final 36 months of ownership, and the letting relief.
Other factors to that reduce CGT liability like taper relief lowers capital gains depending on the period for which you are the owner. Ability of married couple is another factor to reduce CGT. Civil partnership in which ownership is transferred to the partner who pays a low tax also exempts such property holdings from CGT.
If you want to save money on bills on home ownership then it is best to contact professionals and experts in this context of rising house prices. Experts can give you the proper advice to manage your finances well.
About the Author
www.landlord.co.uk
Rating:
Not yet rated
Comments
No comments posted.
Add Comment
You do not have permission to comment. If you
log in, you may be able to comment.
