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Planning For CGT Main Residence Relief

On the sale of a second home ...

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Most people know that when you sell your home, you don't pay Capital Gains Tax. But what happens when the property isn't your main residence? CGT Main Residence Relief can help here ...

CGT Main Residence Relief can save you a lot of money!

CGT Main Residence Relief can save you a lot of money!

photo by sina khansari on unsplash

Take, for example, living in the countryside, but owning a flat in your nearest city for nights out and occasional time, home away from home. A second home.

"And what happens when you come
to sell it?"

You may decide that you want to get rid of your city property and you put it on the market. Selling it at a profit means that you will need to pay Capital Gains Tax less your small annual exemption.

However, with a bit of forethought, as you have two residences, you could have notified HMRC that you are electing the city property as your main residence. After all, you're never going to sell your country home, so knowing that you could sell your second city property, electing it as your main residence makes a lot of sense.

Here are some example numbers and reliefs:

  • The amount of CGT exemption depends on how long it's been your main residence for. If you had a profit of £100,000 and had occupied the city property for 1 out of 10 years, then you can take 10% off that final bill.

  • The last 18 months of ownership are automatically exempt so you can save an extra £15,000 there.

  • If you let the property for the remaining 9 years, you can get letting relief which can exempt another £25,000 from the gain on the sale.

It's easy to get confused about the status of a main residence election. Some people think you have to go on the electoral register, move in all your possessions and live there permanently, but this isn't the case where you have two or more residences.

If you didn’t have an election in place them HMRC would look to see as a matter of fact which residence is your main residence. But this is not the case when an election is in place, here you are telling HMRC which property you want to be treated as your main residence even if it is not.

However, although HMRC will generally accept your election, there have been cases that they have queried, and a lot of money can hang on the decision of a tribunal. If they do query it, you need to be able to prove that you do occupy the flat as a residence.

You will need paperwork to prove this at a tribunal. You may want to keep a diary of time spent in the country and the time spent in the city flat. You'll need to show bills, retain any post for you at both addresses, keep records of your travel to and from the city flat and even retain your theatre tickets. And don't forget to take plenty of photos of your flat's housewarming party as it's all solid evidence.

"Would you like to know more?"

If you'd like to find out more about CGT Main Residence Relief and how to elect a property as your main residence, do give me a call on 01908 774323 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.