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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 10379
Experience:  FCCA FCMA CGMA ACIS
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I want to sell my second home. How can I reduce any

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I want to sell my second home. How can I reduce any potential taxes
JA: Where are you? It matters because laws vary by location.
Customer: England
JA: What steps have you taken so far?
Customer: None
JA: Anything else you want the Lawyer to know before I connect you?
Customer: I am currently renting the property but lived in it from 1998 to 2017

Hello my name is ***** ***** I will be the expert assisting you with this matter today

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Thank you

When you sell a second home the taxation you are paying is Capital Gains Tax, this is only taxed on the profit you make on the house and not the full sale value. You are permitted to deduct certain expenses from your gain to reduce your tax liability. These include estate agent’s fees, solicitor’s fees and the cost of any improvement work. You cannot deduct the costs of decorating or maintaining the property.

You are also entitled to Private Residence Relief for any time you spent living in the property as well as for the last 18 months you owned the home - even if you weren’t living there at the time. If you are a property developer then you won't pay capital gains tax, but you will, of course, pay corporation tax etc on profits made. It would be a good idea to seek additional help from a local accountant who may be able to provide further assistance.

I hope this information has helped. You can find a local solicitor who deals with this on the law society webpage which is;

https://solicitors.lawsociety.org.uk/

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Many Thanks

Ross

Customer: replied 1 year ago.
Hi Ross thanks for your reply. The property I am selling is not my main home anymore.
You say that I am entitled to private residence relief still?
What percentage is pprIf I went back and lived in the property, how long would it take for it to be considered
by HMRC to be a primary/ main home?I am a bit confused by your answer

Apologies if there is any confusion calculating your relief is a process and different for every one. I understand this is not your main residence and is a second home, but you can still potentially claim relief. You can find a a calculator for this online easily and enter your personal details. I will also give you this link,

https://www.directlineforbusiness.co.uk/landlord-insurance/knowledge-centre/finance-and-legal/how-to-prove-and-calculate-private-residence-relief

It. has some pretty useful advice when looking at proving points you need to increase your relief as much as possible. I hope this clears things up fo you.

I would be obliged if you could Click the 5 stars at the top of the webpage (this will not cost any extra). This will tell the website that I have responded to your question, you can, of course, continue to ask any follow up questions free of charge. I won’t be paid for my time from the website if there is no rating left for me.

Many Thanks

Ross

Customer: replied 1 year ago.
Hi Ross. Still not understanding because I understood that the rules were changed in April. I have read the link and don't think it applies post April 2020.Is it possible to live in the second property to have any cgt nullified and how long would I need to live there?

Hello, I am one of the experts on Just Answer and pleased to be able to hlp you with your question.

When did you buy, when did you occupy as your sole or main domestic residence and when do you propose to sell?

Customer: replied 1 year ago.
I bought the flat July 2004 from the council (I was a council tenant).
Lived in the flat as sole domestic residence from April 1998 - March 2017. Rented it out from May 2017 to current date.
I would like to sell the property within the next 18- 24 months. It really depends on whether I need to go back to live there to reduce my tax bill?
Thank you

Let us assume that you sell according to plan. What is the current value?

Customer: replied 1 year ago.
I don't know if the market has changed since corona virus but I believe the value to be £400 000 - £450 000

So split the difference at £425K. I have only just noticed, what did you pay for the dwelling originally?

Customer: replied 1 year ago.
It was valued at £145 000 and I got £38 000 discount under the right to buy

Your gain is 425K - 107K = 310K. Your total ownership time is say 17 years. Your occupation time is 13.75 years as for the last 9 months of ownership you are deemed to be in residence even if this is not the case. Thus 3.25 / 17 = say 20% of the gain is exposed to Capital Gains Tax (CGT). 20% of 310K is 62k. Now knock off your Annual Exempt Amount (AEA), currently 12.3K, leaves 49.7K taxable at 18% or 28% or a combination of the two rates depending on our income including the gain in the tax year of disposal. A worst case scenario would be a tax bill of say a tax bill of just under 14K.

Customer: replied 1 year ago.
I am low income. Max £21 000 including child benefits, industrial injury. Total benefits £4 500. So without benefits my income is the flat rental £345 per week with 8% going to letting agents.
Customer: replied 1 year ago.
Would going back to live in the flat make any difference?

Only very marginally. CGT is a thoroughly nasty little tax liable to rear its ugly head unexpectedly. I recall a man who bought his son a flat for him to occupy at uni and in the end he lived there for years after. When the flat was eventually sold the father was landed with a 38K tax bill for a dwelling he had never enjoyed.

Customer: replied 1 year ago.
55357;���Thanks for the advice.

Delighted to have been of assistance.

Please be so kind as to rate me before you leave the Just Answer site.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 10379
Experience: FCCA FCMA CGMA ACIS
bigduckontax and other Tax Specialists are ready to help you

Thank you for your excellent support.