Tax implications of a second home

janeyw_2

Hi,

My situation is as follows:

I bought my flat at the height of the market and now in negative equity even though I am mortgage free. I would like more space than a cramped flat and considering purchasing a larger home but holding onto my current flat as I'd rather not suffer a loss.

My finances are as follows:

Annual Salary: £30k
Deposit available: £15k for new home
Age: 41 yrs

Assuming I obtain a mortgage, if I purchase a second home and wait for the market to improve to sell my current flat, will I be liable to capital gains tax?

When I move into the new home, my current home will be vacant, thus would I still need to pay Council Tax (Manchester City Council) on this property?

Views appreciated.

Thank you.

G_M

Whether you have to pay CGT on the flat would depend on
1) whether it has increased in value when you sell (capital gain
2) whether the gain is more than the allowance at that time
3) how long you lived in it before moving out
4) how long it had been a '2nd property'.

More here, or ring HMRC and discuss.

If its empty AND unfurnished I believe you have 6 months exemption from council tax, but speak to your local council. This may only apply during renovation.

Beware leaving the flat empty - your insurance will be invalid after (30? 45? 60?) days.

Consider renting, but read here.

00ec25

scenario 1 - you do NOT let it out

you have 2 years from the date you buy the second property to nominate which of your 2 properties you want HMRC to treat as your main residence. You can only have one main residence at a time and it will be 100% CGT exempt

if you do not make such a nomination that the decison as to which is your main home will be based on the facts of which one you actually live in

your second property will be liable to CGT but you wil only pay CGT if:
a) you sell it more than 3 years after your moved out (the "3 year rule")
b) you actually make a gain (after deductong the relief for when you lived there as your mian home) > the one off personal allowance

example
purchase price 100,000
bought in year 2000
moved out in year 2011
sold in year 2015
sold for 130,000
owned for 15 years

gain 130 -100 = £30k
main residence period 2000 - 2011 = 11 years so 11/15 exempt
3 year rule so extra 3/15 exempt
CGT liable period 15 - 11 - 3 = 1 year

taxable gain : 30,000 x 1/15 = £2,000
personal allowance £10,600 (@ rate applicanle for 11/12 tax year)
2000 - 10,600 = -8,600 negative net gain zero therefore no tax to pay

do the maths with your own numbers - could a long time before you would be laibale to pay CGT

scenario 2 - you DO let it out
this means you will get an additional relief on top of the 3 year rule which is worth up to another £40,000


Council tax

you will have to pay it but all councils must give a minimum 10% diiscount on 2nd homes (but it could be up to 50% at discretion of your own council) provided they are not let out (if they are then then tenant has to pay, not you)

SouthCoast

Why not take the "hit"?

Bear in mind the impact that inflation will have on your capital asset and the annual running costs.

janeyw_2

Thank you for all your replies. Much appreciated.

SouthCoast - I'm reluctant to take the "hit" as several properties in my block have been on the market for over a year at 25% less than the price I paid! Speaking to my neighbours, interested parties have seem to have difficulty securing a mortgage.

Looks like being a landlord in the short term may be an attractive option.

Thanks again.