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Derbyshire Tax Services Ltd

Tax consultants & accountants for Derby, Derbyshire & the East Midlands
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Second Home?
This planning is a must for all who have more than one home.
 
Many people will be familiar with the basic concept of the "principal private residence exemption" for capital gains tax purposes when you sell your main home, i.e. by and large no matter how much the property increased in value during your period of ownership you will not pay any capital gains tax on disposal.
 
The common scenario

I have a main family home which I have lived in for many years and which I intend to live in for some time to come. I acquire a second home this year. This is a small cottage which I stay in for say one third of the weekends in the year. I occasionally let it out to friends and other members of the family.
 
In four years’ time I sell the second home.
 
With no planning

When I buy the cottage, I do not undertake any capital gains tax planning because in my own mind the old house is and always will be my home.

Any capital gain arising on the sale of the second home will be wholly chargeable to capital gains tax.
 
With planning

Suppose instead, I had undertaken some tax planning on or around the time that I acquired my second home.
 
When I am due to sell the second home, I activate the planning strategy. By doing so, three-quarters of the gain on the cottage in the above scenario is exempt from tax.

If I come to sell my main home at some later point, my exemption on that property is only restricted by a matter of a few days. Effectively, therefore, I have swapped a few days loss of relief on my main home for three years’ relief on my second home.
 
Important - Time limits

The key here is of course that you have to put the planning in place within two years of acquiring your second home. Once you have put the planning in place you are free to vary it between homes at any time – you can even backdate the planning two years.

So by implementing this strategy you are giving yourself complete flexibility when it comes to future sales. But where you do not put the planning in place in time you miss out on the opportunity. 
 
How to take advantage of this planning 

If you are interested in minimising capital gains tax on the future sale of your second or holiday home, then please contact us to discuss your particular circumstances further.