Reducing tax on your second home!
People who own second homes have been celebrating the reduction of Capital Gains Tax to 18%, made by Chancellor Alistair Darling in October’s Pre-Budget Report – but a local tax specialist is warning that the benefits may not be as clear-cut as they initially appear.
According to Richard Hall of Aldridge Brownlee Solicitors LLP, “There are circumstances in which such people are better off now, so if they’re considering selling their second home, they’d be well advised to do so before the changes take place on 6 April 2008.”
Currently, the profits made from the sale of any investment, including a second home, are taxed at either 20% or 40% - depending on whether or not the seller is a standard or higher rate tax payer. However, the amount of the profit that is taxed reduces the longer the investment (or home) is held. From April next year, however, there will be no such reduction, and everybody will pay a flat rate of 18% capital gains tax.
Richard Hall says, “Essentially, higher-rate tax payers who have made a substantial profit on their second property could be better off if they sell on or after 6 April next year. Conversely, people paying the standard rate of tax and who do not stand to make such a large profit may be well advised to sell under the current regime.”
Both types of seller, however, would have stood to make substantial savings if they had taken professional advice on how to lower their tax liability.
According to Richard Hall, “Electing to make a Principal Private Residence within two years of buying or inheriting a second home would make the last three years of ownership free of Capital Gains Tax, meaning people in both tax bands would have to pay considerably less.”
Anyone considering selling a second property, or wishing to ensure the most tax-efficient way to own a second property, should contact Aldridge Brownlee Solicitors LLP on 01202 527 008 to discuss their circumstances.
