If you spend time living in a holiday home, or a bolt-hole city centre apartment, you could soon face a significant tax charge if you decide to sell your main family home.
The Government has proposed that, from April 2015, HMRC will have the power to decide which property will be taxed depending on where you spend most of your time, rather than you being able to elect a home as your principle residence.
This follows a reduction in the time period you have to sell a second home before Capital Gains Tax (CGT) is charged, from the final three years of ownership if a second property is declared a main residence, to 18 months.
CGT is currently charged at 28% on any gains following the sale of a second home.
The good news is that there are a number of ways to reduce CGT in the event of a sale of property, or assets such as shares and collective investments.
Firstly, everyone has a tax free annual allowance of £11,000. If you are not making use of this allowance it can’t be carried forward.
Selling some assets at a loss can also reduce CGT if the overall gain in the tax year exceeds the personal allowance. This is because gains and losses are offset against each other, reducing the gain that is subject to tax.
A transfer of assets to spouses is currently exempt from CGT, allowing for both personal allowances to be used. In addition, it is possible to “crystallise” a gain by selling shares on which a gain is made and for these to be immediately bought back by a spouse, so the gain is realised CGT free, but remaining in the family.
Other ways of reducing CGT include investing directly in an ISA or a pension fund, giving shares to charity, or investing in an Enterprise Investment Scheme (EIS).
At JW Hinks, our lifestyle services team can provide a comprehensive tax planning services to ensure your wealth is protected and you are maximising all cost-saving opportunities.