Tax Breaks When Owning A Second Home
Many people in the UK worry about the prospects of owning a second home. The desire to do so is continuing to grow in many people in the UK, but potential worries about taxation, hidden costs and legal woes put many people off becoming second home owners. Recent governmental announcements claim to be offering tax breaks for individuals who own a second home, so let’s take a look at the ways you can benefit from a few tax breaks.
Upcoming Tax Breaks in the UKIn April 2008, a new law will come into effect where second home owners will benefit from a sizeable tax break. The tax rates on profits from the sale of buy to let investment properties and holiday homes will be reduced from 40% to a mere 18%. By reducing the capital gains tax, the government have inadvertently dealt second home owners a huge tax break.
Capital gains tax is the tax due on the difference between the price you pay for your property and the price you sell it for. It’s due on any home you own that isn’t your main private residence. When the government announced that they were reducing the capital gains tax, it was primarily aimed at increasing the amount of tax paid by wealthy individuals. The 18% rate was designed to also simplify the existing tax system and to bring the rates for business and non-business assets into the same category as holiday homes. The repercussions of the upcoming tax break means that there is likely to be an increase in the number of buyers in the property market next year and in particular in the second home market.
What Do the New Tax Breaks Mean For YouThe changes to the tax system mean that as a second home owner, you’re capable of saving a large amount of money should you sell it. Here is a very common example: If you purchase a buy to let property or a holiday home for £300,000 and make a profit when you sell it of £100,000 you would previously have been liable to pay between £24,000 and £40,000. With the new tax percentage of 18%, you will only need to pay £18,000, meaning you have made a possible saving of £22,000. As you can imagine this is a sizeable saving on your estate when you die and is sure to be of appeal to many prospective home owners.
Researching Foreign Countries for Tax BreaksIf you are hoping to buy a second home in a foreign country, you may be eligible for large tax breaks from both the UK government as well as the government in the country you’re buying in. Countries such as Cyprus benefit from the recent changes in self-invested personal pensions in the UK where taxpayers are able to decide what they want to do with their own pension investments and can even buy residential property with it.
Other countries such as Spain or France don’t recognise this kind of legislation, therefore it’s important you research as much as you can. In countries such as Australia, the government there are so keen for people to get on the property market and to provide further housing that they will offer fantastic tax breaks on individuals who buy to let or build homes for renting out to others. Generally, countries that have similar laws in place to the UK are accepted by the UK government for taxation purposes and therefore you may be entitled to some great tax breaks.