2nd. Home Initial Costs and CGT

caveman38

I am trying to work out the viability of buying a holiday home. As I will only be using it at weekends and not sub-letting, I will have to front all the expenses myself.
On a £150K appartment, I know I will have to pay out £4K+ per year on maintenance, ground rent, rates, gas & elec etc.
The two questions that will make or break my decision are:
a) How much am I likely to need initially to make the purchase ie. Solicitors fees etc, and b) when I sell it in the future, what CGT will I incur. Can you ofset mortgage payments etc. or is it assessed solely on the increase (assuming there is one) in value.
Any help / advice welcome, cheers.

00ec25

what is your logic?
do you expect the gain in value to recoup all your running costs over the period you owned it hence you are concerned tax will cut into this? If you cannot afford to pay the running costs from your annual salary without looking to recover them from the gain, then perhaps you should not be looking to buy?

you will only pay CGT when you sell it therefore, however much CGT is payable at that time, you can fund it from the sale proceeds

you cannot offset mortgage costs or any other costs (except as explained below) against the gain

CGT options:

1. Buy it in your name only and do nothing option - ie use it as a holiday home for yourself weekends etc, This means you will pay CGT on the gain in value between what you paid to buy it and what you eventually sell it for. You can deduct your legal fees and EA fees from the purchase price and sale price as applicable. The net gain figure can then be reduce by your annual CGT allowance to give the total gain amount which you will pay tax on at whatever is the then rate - it is unlikely to remain 18% much longer!

2. As above but buy it in joint names with your OH - half the gain will be attribitable to each person and each person can then apply their annual exemption amount to their share

eg: Purchase price 150k costs 5k = 145 sales price 250K costs 10k = 240k gain = 240 - 145 = 95 - personal allow (£10,100) = £84,900 taxed @18% = £15,282
if there are 2 of you then the gain is 95/2 = 47,500 -10,100 = 37,400 @18% = £6,732 EACH (ie total £13,464)

3. the Election option - within 2 years of buying it you must notify HMRC (the CGT "election") which of your 2 properties is to be classed as your main home. This will determine which of the 2 will be liable for CGT when you sell it. There are a number of extra things you can do to then manipulate this which I am not going to complicate this answer by explaining at this time - it is the rule used by the MPs when they "flipped" homes - all perfectly legal (at the moment)

4. live in it as your main home at some stage - if you do this there is no defined minimum period but it must be your main home in reality so HMRC would expect, for example, to see you commuting to work from it. The advantage being this gives you an automatic 36 months 100% CGT exemption from the overall period of ownership

silvercar

Broadly agree with 00ec25. To add:

"The Election option" also gives you the last 36 months as PPR.

CGT is only charged if there is a gain that exceeds your CGT allowance and you sell the property.

Make sure you can afford to run two properties before you go ahead.

nollag2006

Is Letting Relief still available since the CGT rate fell to 18% in 2007?

silvercar

nollag2006 wrote: »

Is Letting Relief still available since the CGT rate fell to 18% in 2007?

Yes, but you have to let it out to get letting relief.