Capital Gains on Holiday Cottage - help!!

jonnypetrovski

Hoping somebody can help me work out what I might be liable for in Capital Gains Tax on a holiday cottage I'm about to sell...
The details -
Purchase date - March 2007
Purchase price - £210k (Joint Mortgage)
Sale Price - £250k
Provisional sale date - November 2010.
House has never been our main residence and has been let out (holiday let) since purchase.
Really not sure what we might be liable for here - find the whole thing quite confusing!

John_Pierpoint

If it really is a "holiday let", then it is a business.
Do you intend to re-invest the profit on the sale of your business asset?

jonnypetrovski

Although it is a holiday home for us as well, it is primarily a holiday let, upon which we pay business rates.
Any thoughts?

jonnypetrovski

I should say that the holiday let runs at an annual loss, as we are selective about the number of lets we take on.
Also, we are not planning to re-invest the proceeds of the sale.

ceh209

If it really is as simple as the facts you give:

you're looking at a gain of 40k. (250k - 210k)

split this between the two of you (i presume your wife?)

gain of 20k each

both use your annual exemption of 10200

leaves you both a gain of 9800.

which is taxed at... (someone fill in the blank please, i'm not up to date on rates)


btw i believe you can deduct costs of sale e.g. solicitors fees from the sale price, so reducing the gain a bit.


the reinvesting is in relation to rollover relief, which you can't get as you're not reinvesting.

whether it runs at a loss is relevant for income tax, not capital gains tax. but if you have trading losses brought forward, you may be able to set them off against capital gains. Please get some proper advice on this bit!

Pennywise

It may be liable to the entreprenneurs rate of CGT if it qualifies the criteria for being a furnished holiday let for tax purposes (same for income tax as capital gains tax) which is basically based on the number of weeks per year it is "available" for letting and the number of weeks per year it is actually "let". These rules are to stop people benefitting from the generous tax relief rules when using a property as their own holiday home and only letting it out occasionally.

If you do meet the criteria, you can set annual losses (i.e. rents received less interest less other costs) against your other income to trigger a tax refund. You also qualify for the entreprenneurs relief and rollover relief. If you don't meet the criteria you can't set any annual losses against anything other than future rental profits - you can't set against capital gains.

Also be mindful that you should have disallowed some of the annual costs (interest, utilities etc) in proportion to your private use of the house, so if, eg. you stayed there for 36 days per year, you have to disallow 36/365ths i.e. 1/10th of the expenses.

It can get very complicated and you'd be best advised to ask your accountant before you commit to sell, so that you know what your CGT liabilities are.