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Where Taxpayers and Advisers Meet

2nd Home CGT

LynneB
Posts:10
Joined:Mon Jul 25, 2016 4:50 pm
2nd Home CGT

Postby LynneB » Thu Nov 19, 2020 9:03 pm

I understand that on buying a second home there is 9 months allowed to sell the original after which CGT has to be paid on any gain on the first home. But what if the second purchase is a second home for occasional use?
For personal reasons I intend to live between the two for year or two and sell the original home within 3 years which I believe is necessary to reclaim the 3% extra stamp duty. If I keep the first home as my address for bills etc will the 9 months rule not apply and my original home therefore be CGT exempt? Would I then have any liability for the 2nd home as once I sell the original home it will then be my only home?
Thank you to anyone who has any experience to offer.

bd6759
Posts:3371
Joined:Sat Feb 01, 2014 3:26 pm

Re: 2nd Home CGT

Postby bd6759 » Thu Nov 19, 2020 10:10 pm

It is not all or nothing. After 9 months, the gain is not wholly exempt, but the proportion in which you lived in it will remain exempt. If you sell a house 10 months after you move out, the non-exempt gain is 1 month/total number of months of ownership.
In your scenario you will have a choice. You can elect which will be your main residence for the purposes of residence relief. You can only have one main residence, so the property that you do not choose will be accruing a non-exempt period.

You need to do your suns and estimate the gain you will make over the periods of ownership, and decide which property will benefit most from the exempt period.

LynneB
Posts:10
Joined:Mon Jul 25, 2016 4:50 pm

Re: 2nd Home CGT

Postby LynneB » Fri Nov 20, 2020 4:33 pm

Thank you very much for your helpful answer. I am likely to make the biggest gain on the original property; around £60k. But it has been my only home for 5 years so if I nominate the second property, even for up to 3 years before the first is sold, I am thinking there will be minimal tax to pay after the annual allowance is deducted as my £23k pa income is well under the higher tax limit:--

£60k ÷ 96mths = £625 x 36mths = £22500 - £12500 personal allowance = £10k x 18% = £1800 tax payable?

I am thinking that although I could avoid this by nominating the first home, it is only by nominating the second home that I would fulfill the requirements to reclaim the £8250 3% SDLT payable for my second purchase?

bd6759
Posts:3371
Joined:Sat Feb 01, 2014 3:26 pm

Re: 2nd Home CGT

Postby bd6759 » Sat Nov 21, 2020 1:43 am

The CGT nomination lets you decide which is to be treated as your main residence, even if it is in fact your main residence.

The nomination does not affect SDLT. SDLT is based on facts: which is your main residence.

It you buy a new house with the intention that it is to be your main residence, as as a fact it is your main residence, the SDLT will be refundable.

maths
Posts:8037
Joined:Wed Aug 06, 2008 3:25 pm

Re: 2nd Home CGT

Postby maths » Sun Nov 22, 2020 2:59 pm

Below is an extract from an HMRC publication relating to intention to occupy the newly purchased property as a sole or main residence:

"The test in respect of the new dwelling purchased is a question of intention, does the purchaser intend the dwelling to be his only or main residence?  This is a question of intention at the time of purchase. What has the purchaser acquired the property for?  The intention test will not only be met if there is an intent to immediately occupy, if some works are to be undertaken before occupation commences, or a short lease is in place before purchase, then this does not prevent the test from being met.  If the dwelling is intended to be put to other uses, for example as a source of income, then the intention test will not be met.  There may be rare cases of the purchaser’s genuine intention at the time of purchase being frustrated by events"


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