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bigduckontax, Accountant
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Hi My wife and I have decided to We have two expensive properties One

Customer Question

Hi
My wife and I have decided to
We have two expensive properties
One has been our main residence for the past twelve years
The other is a holiday cottage which we have owned for three years
What tax liability will there be when we sell them and is there anyway to mitigate this
Regards XXXXX XXXXX
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Your main domestic residence is exempt from Capital Gains Tax (CGT) as it is your sole or main domestic residence. Note the word 'or,' not 'and.' Here is the HMRC guidance on the matter:

'Selling your own home

Normally you don't have to pay Capital Gains Tax when you sell or dispose of your own home, as you may be entitled to Private Residence Relief. Private Residence Relief may exempt all or part of any gain you may have made.

You must have used the property as your only or main residence during the time you've owned it. There are also other factors that you need to consider to work out what Private Residence Relief you may be due.'

Your holiday home will be exempt from CGT as the last 3 years of ownership are ignored for CGT purposes as is the year in which the sale takes place. The 3 year rule is also enshrined in the Private Residence Relief conditions.

It looks as though you may get out scot free of CGT.
Customer: replied 3 years ago.
Hi
I have realised that we had the land registered in July 2008 for our holiday cottage.
We had a new house built on the site and it was completed I in July 2010
Sorry for not giving accurate information.
Regards Paul
Expert:  bigduckontax replied 3 years ago.
Thank you for that information. It actually doesn't alter the position as you held the property over 3 tax years 09/10 - 12/13 so the 3 year rule still applies and, as I said, the year of sale doesn't count.

Furthemore the following additional concession apples to the rebuild. Although you are in the clear anyway it strengthens your position as you are deemed to be in residence for the rebuild period subject to the time restraint. Presumably as a holiday home you did occupy same!

'ESC D49

ESC D49 applies where a person has acquired a house and has delayed occupying it because certain alterations or redecoration are being carried out. Provided this period does not exceed 12 months, it can be treated as occupation. It is, however, necessary for the owner to actually occupy the property subsequently.'

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3004
Experience: FCCA FCMA CGMA ACIS
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Expert:  TonyTax replied 3 years ago.
Hi.

I have a different answer.

Unless you elected for the holiday cottage to be treated as your main home within two years of buying it, you won't escape CGT for the last three years of ownership. Any gain on a disposal now will be fully taxable.

The first £10,900 of gains made by an individual in a tax year are tax free. The rate or combination of CGT rates (18% and 28%) that you pay will be dependent on your income in the tax year gains are made.

If the home that you have owned for twelve years has been your main one for the entire period of ownership, any gain will be fully exempt from CGT. See HS283 here.

A married couple who are living together can only have one main home between them. In certain circumstances, it is possible to split the main residence exemption on a time apportionment basis depending on the circumstances though it would be unusual to make such a claim for a holiday home. In any event, why would you want to sacrifice part of a full exemption for the property that you have owned for 12 years?

If you sold the home you have owned for 12 years (or within three years of moving out) and lived in the cottage for a year or so that might allow you to claim CGT exemption for the last three years of ownership. However, if the tax office consider that your motive for moving in was purely to avoid tax they may seek to disallow any such claim. Occupation of a property you claim to be your main residence is more about about quality of occupation as opposed to length of occupation. Quality of occupation basically means moving your life to a new home.

There really isn't much you can do to reduce your exposure to CGT apart from selling when you are not paying higher rate tax, ensuring properties are in joint names to get multiple CGT exemptions or putting property in one spouse's name if that spouse would pay less CGT on the whole gain than the two of you would separately.

I hope this helps but let me know if you need clarification.
Expert:  bigduckontax replied 3 years ago.
Whilst the additional post may be relevant it fails to reflect the practicalities. I am aware of a number of cases where HMRC have raised no assessments in similar situations.
Expert:  Sam replied 3 years ago.
I am afraid Tony Tax is correct (and I worked for HMRC for 26 years before setting up my own accountancy business) unless the holiday cottage has ever been your main residence or elected as such, then it will have a full capital gain exposure (less the annual exemption allowance) ThanksSam

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