Householders who have invested savings and hard work in a second home could find themselves facing big bills from the taxman unless they take appropriate steps to limit their liability, warns Martin Barber, client partner based at the Hartlepool office of accountancy, business and tax advisory group, Vantis.
Ownership of second homes has become increasingly commonplace as householders seek to capitalise on the booming British property market by investing in a holiday home or entering the 'buy to let' market. While their main home - or 'principal private residence' in tax-speak - is exempt from capital gains tax (CGT), any other properties they own could attract CGT at the highest rate when they are sold.
Mature couples getting married for the second time could also get caught by CGT if they both own a home. When they get married, they may only nominate one property as their principal private residence, leaving the other home vulnerable to CGT.
While there are a number of ways to reduce tax bills, Martin Barber warns that there are no simple solutions and advises second home owners to get professional advice to be sure of saving money in the long term.
"Owners have two years after the purchase of second homes to decide which of their homes is their principle residence. They do not have to be living in it at the time,' he said. "It is also possible to cut CGT by living in the second home for a period and there is up to £40,000 letting relief available for each part owner if they have rented out their main residences.
"Other factors to consider are taper relief, which lowers capital gains depending on the length of ownership. Married couples or those in civil partnerships can also transfer part of the ownership to the partner who pays the lower tax rate.
"With the huge rise in house prices in recent years, significant sums of money could be involved, making it well worthwhile to seek expert help to evaluate the solutions available and plan the most effective CGT strategy."