PROPERTY
SELLING YOUR SECOND HOME AND LETTINGS RELIEF EXPLAINED
IF YOU’ RE SELLING A RESIDENTIAL PROPERTY THAT IS SUBJECT TO CAPITAL GAINS TAX – TYPICALLY THIS WOULD APPLY TO ANYONE WITH A SECOND HOME OR A HOLIDAY LET –‘ LETTINGS RELIEF’ IS AN IMPORTANT AND VALUABLE TAX RELIEF THAT IS OFTEN OVERLOOKED.
In short, you are eligible to use lettings tax relief to reduce your capital gains tax( CGT) if you own a property that has been both your main residence and has been rented out during your ownership, whether on a shorthold tenancy, or even as a holiday let.
Lettings relief is quite complicated and you will need to seek advice from a tax expert, but it’ s worth investigating if you have rented out a property that has also been your family home as it can significantly cut the capital gains tax that you are liable for.
If you fail to claim lettings relief, you would be liable for capital gains tax on the increase in value of the property for the periods when it has not been occupied as your main residence. By applying lettings relief, you can claim capital gains tax relief for the period that the property was let and also for the last 18 months you owned the home – even if you weren’ t living there at the time.
There are some HMRC limits to the amount of relief you can claim. The maximum that can be claimed is £ 40,000, but otherwise it’ s limited to the increase in the property’ s value during the period in which the property was let, or the relief already claimed for private residence relief.
One important point to consider when looking at your estate planning is that if you gift a property to your spouse and the property is not your main residence at the time of the gift, lettings relief can be lost. Lettings relief does need to be formally claimed. This may be done either by submission of a tax return or, for tax payers with straightforward tax affairs, by a letter to HMRC. Seeking professional legal advice will ensure that all tax reliefs are taken into consideration when selling a property.
Tom Lacey, chartered tax advisor at Moore Blatch Solicitors, Southampton, has given us his top advisory ideas for those considering selling a second home:
• Plan in advance to make use of allowances and reliefs – annual CGT exemption is worth £ 11,100, which could double to £ 22,200 for a married couple jointly owning the property. Make sure any action taken doesn’ t accidentally waste tax allowances and reliefs.
• Know what the capital gains tax bill could be and when it will be payable.
• Take professional advice early in the decision making process for a sale.
• Make sure all the paperwork on ownership is correct and up to date, especially for properties which may have been in the family for many years.
• Tax isn’ t always logical or even helpful when gifting property to the next generation. There are traps – make sure you seek professional advice to avoid them.
www. mooreblatch. com
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