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How Will Capital Gains Tax Affect My Second Home?

By: Emma Eilbeck BA (hons) - Updated: 1 May 2015 | comments*Discuss
Capital Gains Tax Tax Second Home Profit

The words Capital Gains Tax can often strike fear into landlords and second homeowners the land over.Capital Gains Tax is the tax that you are charged from any profit you make on any assets you own, for example your second home.

In the June 2010 Emergency Budget there were some significant changes made to the way second homeowners are charged the tax, so it is worth noting if you are planning to sell your second home.

These questions should help you understand how the changes affect you.

1) How Long Do You Stay At Your Second Home?

  • A) More than six months of the year
  • B) About six months of the year
  • C) Only a few months per year

2) How Much Do You Earn A Year?

  • A) A lot less than £43,875
  • B) Only slightly less than £43,875
  • C) Over £43,875

3) How Much Profit Would You Be Likely To Make From Selling?

  • A) A couple of thousand pounds
  • B) Around £9,000
  • C) More than £10,000

4) Do You Have Any Other Profitable Assets?

  • A) I have no stocks/shares
  • B) I have some savings/ISAs, not many
  • C) I have a large number of assets I regularly make a profit from

Your Answers

Mostly A – You Might Escape The Tax

From your answers it sounds as though you might be lucky enough to escape the tax. The tax is only payable is you earn over £10,000 from your assets over the course of the year. If you sell your property for a couple of thousand pounds and have no other assets that you are selling you will not be liable.

If you live in the property for more than six months of the year it might also be classed as your primary residence, which means it would be your first home that is taxable and not your second home. If you earn a lot less than £43,875 it means you will not pay the higher tax rate on your wages, so even if you do end up paying Capital Gains Tax it will be at the lower rate of 18%, not 28%.

Mostly B – You Could Be On The Borderline

You sound like you are borderline exempt. If you spend less than six months of the year in your home it will be classed as your second home and taxable. This means any profit you make from the sale of your house will be charged at 28% tax. You will be charged 28% and not 18% if you earn more than £43,875, this is including any profit from the sale of other assets.

If for example you only earn £35,000 but make £10,000 from the sale of your second home, this will push you into the larger tax bracket of 28%. If you are close to retiring or receiving a lower wage you may wish to wait.

Mostly C- You Will Be Getting A Visit From the Taxman

You will almost definitely be liable for Capital Gains Tax, and at the higher rate of 28%. You are already in the higher tax bracket in terms of your salary so this works against you. If you make any profit from shares of savings you will also have to add these up which will again push you over £43,875.

From watching the Budget, you may have gotten the impression that you would not be liable for Capital Gains Tax, but there is always a sting in the tail when it comes to tax.

If you are thinking of selling your second home soon you may want to look at whether it is worth and how much your profit will be dented. You may wish to hold on for your property a little while longer or use it to rent out instead.

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If I sold my second home,and bought another house with the money,to let,like I do now,would I still pay capital gains,we are retired .
dunner - 1-May-15 @ 10:57 AM
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