Selling a holiday home

[chrissyr]

Hi all

My wife and I have two houses - our main home and a 'holiday home' we bought 8 years ago (no holiday constraints on it). The original plan was to sell our main house (once our kids were settled in homes) and then live in the hh for a few years until we then looked for a 'retirement' home. But looking at the cgt on second homes this now looks too expensive (think this all changed when Mr Osborne was tinkering).
Our main home is worth about £400-450k the hh about £150-180k.
Not sure if I am understand the rules correctly but if we sell our main home that would attract the cgt ? We have lived there for 25 years and initially bought for £65k. That would be a lot of tax!
The only way I can see is that we have to sell the hh and take the cgt on that (bought for £135k and probably £3k of work on it). And then sell the main and then buy the retirement home.
We have a £71k mortgage (offset and have the funds to cover).

Am I correct in my understanding? Anything else I could do?

Thanks in advance,
Chris

[Alaric]

Not sure if I am understand the rules correctly but if we sell our main home that would attract the cgt ?

I think you are probably confusing the stamp duty rules with the CGT rules. Somewhere you live is exempt from CGT. There may be some ways of exploiting the rules to save some tax on the disposal of the second home, by moving there for a while. Whilst this potentially leaves your original main home subject to tax, there are rules about overlap periods which can be used.

There's another recent thread about someone who brought under "right to buy" and subsequently moved out.

[chrissyr]

Hi Alaric

did see the other cgt thread but we do not rent out the hh. Don't think I pay any stamp duty on either home ( only when buying a property)?
Reading the rules (and maybe not understanding them) my main house would be classes as the second home and so get the cgt - it can be claimed back when we eventually buy a new main home (up to 3 years I think). Sort of makes sense in that the hh can't be a 2nd home if we do not have a main.
Even at 18% that would be +£60k so may go to 28% as we would be high rate earners!
Am thinking just sell the hh and take the much smaller hit.

Chris

[PinkDalek]

Hi Alaric

did see the other cgt thread but we do not rent out the hh. Don't think I pay any stamp duty on either home ( only when buying a property)?
Reading the rules (and maybe not understanding them) my main house would be classes as the second home and so get the cgt - it can be claimed back when we eventually buy a new main home (up to 3 years I think). Sort of makes sense in that the hh can't be a 2nd home if we do not have a main.
Even at 18% that would be +£60k so may go to 28% as we would be high rate earners!
Am thinking just sell the hh and take the much smaller hit.

Chris

This does seem to be somewhat confused.

Your Main Residence should be completely exempt from CGT. Subject to it being sold within 18 months of moving out (if you do) as The final 18 months of your period of ownership always qualify for relief and assuming some of the other traps, such as permitted area (see link below), are not relevant.

If you move into your holiday home and it truly becomes your new main residence then part of that period of ownership will also be exempt. You say your wife and you own the holiday home. If equally, you should both benefit from the CGT Annual Exempt Amount (if not used against other capital gains) which is currently £11,300 each. Base on your approximate figures, there may not be a great amount of CGT involved in any event. Don't forget your incidental costs of acquisition and disposal which will further reduce the gross gain.


Study this which should help you understand the position:

HS283 Private Residence Relief (2017)
https://www.gov.uk/government/publicati ... ef-2017--2

[tea42]

Also factor in the cost of any improvements to the home that you are selling as part of its cost reducing tne amount of gain you have made. If you own it equally and you are basic rate taxpayers that softens the hit as you pay tax at some or all of the gain at only 20%. Might be worth waiting until you retire and either of you become a 20% taxpayer after retirement to lessen the bill.

[PinkDalek]

Also factor in the cost of any improvements to the home that you are selling as part of its cost reducing tne amount of gain you have made. If you own it equally and you are basic rate taxpayers that softens the hit as you pay tax at some or all of the gain at only 20%. Might be worth waiting until you retire and either of you become a 20% taxpayer after retirement to lessen the bill.

The "basic rate" CGT on residential property is 18% and the higher rate 28%.

There's a CGT calculator here https://www.tax.service.gov.uk/calculat ... roperties/

It includes a brief summary of enhancement expenditure (the OP mentioned £3,000) as:

How much have you spent on improvements since you became the property owner?

Improvements are permanent changes that raise the value of a property, like adding extensions or garages. Normal maintenance costs don't count.

[chrissyr]

Thanks for all the replies think it has sunk in now. I use the example 4.3 and get the PRR on our main and then start building up relief on the hh when we start living in that as that then becomes our PRR.


Chris