My wife and I are retired. We intend to buy a retirement property near the sea and fund the purchase from savings and a legacy received recently. We will still keep our main home, however (in which we have lived for 30 years), and live in it as normal but go to the house by the sea regularly.
What will happen come the time we sell our main principal home and move full-time into the property by the sea? Will we get hit with Capital Gains Tax etc? Thank you for your trouble. PaulH.
Having a second home has become increasingly common whether that second home is a buy to let or a holiday home. When it comes to selling a home and capital gains tax, known as CGT, the rule is that the main residence is exempt from this tax. Your main property of residence will be exempt from the tax but you will have to make sure that this home is named as your main residence when a second home is purchased.
Capital Gains Exemption
The main point of your question is that you will have two properties at the one time for a certain period of time and will be living in both on a regular basis. Living in the second home regularly could mean that this is seen as your main residence. This means that the property you have lived in for over 30 years could be hit with capital gains tax when sold. One way around this rule is to name your present property as your principle residence.
Nominating a Main Residence
Once you have purchased your second home you will have two years within which to name the property that is to be the main residence. Property owners do not have to be living in the main property at the time to name it as a main residence. If you do not register the main residence within this two year time frame you will no longer have the right to nominate. If you do not nominate then when it comes to selling you will have to prove which home was the main residence in order to avoid the capital gains tax.
Holiday Lettings Tax Relief
There are also tax relief advantages if you are intending to let out a holiday home for a period of time. A letting tax relief of £40,000 is available to owners who let out their properties for at least 140 days per year. This relief can be applied to anyone who has a share in the property. If a married couple own a second home that they let out as a holiday home then they would each be entitled to £40,000 tax relief. There are of course rules and stipulations to tax relief when letting out holiday homes.
When it comes to capital gains tax and property there are also rules that will affect the CGT exemption such as utilising part of the property as a business. Taking advice from a professional accountant will be helpful when addressing all of these issues.